- EUR/USD has bounced off the lows after US Core PCE missed estiamtes.
- The Federal Reserve's war on inflation is set to keep the dollar bid.
- Thursday's four-hour chart is pointing to mild oversold conditions.
Rising for fresh air before another dive – that is how EUR/USD seems to be behaving on the last day of the first half of the year. End-of-quarter adjustments could cause some further floating in not-too-deep waters before sinking reality returns.
The trigger for the temporary upswing has been the release of US Core Personal Consumption Expenditure (Core PCE) which has missed estimates with a read of 0.3% MoM for May. Expectations stood at 0.4%. Nevertheless, the YoY figure came out at 4.7%, bang on expectations. This is the Federal Reserve's preferred gauge of inflation, and it is significantly above the 2% target.
A minor miss of 0.1% in one month serves as the spark for dollar profit-taking in jittery and over-sensitive markets. However, it does not change the big picture.
When asked about the risk of a recession, Fed Chair Jerome Powell clarified that the bigger mistake would be to fail to restore price stability. The Fed could go too far, admitted Powell when referring to triggering a downturn, but it seems like a price he would be willing to pay.
Prioritizing crushing inflation means raising rates quickly, and that is a boon for the dollar.
In the meantime, the old continent is bracing for fresh Consumer Price Index (CPI) figures on Friday, and data from individual states has been mixed. While Spain's inflation exceeded 10%, Germany's data missed estimates and French figures came out exactly as expected.
All in all, the main mover is the dollar –and it is trending higher. The current dip looks like a much-needed correction rather than a change of course.
EUR/USD Technical Analysis
Euro/dollar is in moderate oversold territory according to the 4h-RSI, which is hovering around 70. That gives the currency pair room to bounce. Other indicators such as the MACD and the SMAs are pointing to the downside.
Support is at 1.0380, the daily low, and then at 1.0350, the 2022 trough and the lowest since 2017. The 2017 bottom was 1.0340. Resistance is at 1.0425, followed by 1.0470.
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