- Inflation data from the Eurozone weighed on the Euro, while the US Dollar was affected by comments from Fed officials.
- After hitting new monthly lows, the EUR/USD rebounded towards 1.0700, boosted by a weaker US Dollar.
- The EUR/USD shows some signs of stabilization, but the bearish trend remains intact.
The EUR/USD dropped but finished off its lows on Wednesday after the US Dollar weakened. Inflation data from Germany and France eased tightening expectations from the European Central Bank (ECB), weighing on the Euro. However, if the US Dollar continues to lose momentum, it could offer support to the pair, which remains bearish.
In Germany, inflation, as measured by the Consumer Price Index (CPI), declined from an annual rate of 7.2% in April to 6.1% in May, below the consensus of 6.5%. During the month, the CPI declined by 0.1%. In France, the CPI also dropped by 0.1% in May, and the annual rate fell from 6.9% to 6%. On Tuesday, Spain's inflation data also came in below expectations.
On Thursday, the Eurozone CPI is due, and a sharp slowdown is expected, including a deceleration in the core rate, which would be the first one since June 2022. Softening inflation eases the pressure on the ECB; however, a rate hike at the next meeting is still expected, with inflation well above target. ECB Vice President De Guindos said the central bank "cannot be complacent". According to ECB Muller, "it is very likely" that the central bank will hike its rates by 25 basis points more than once.
In the US, inflation and employment data keep the door open to another rate hike at the June 13-14 meeting. However, comments from Fed officials Harker and Jefferson pointed in a different direction. They favored a pause at the next meeting but clarified that it does not imply no more rate hikes.
The next reports from the US will be watched closely. On Thursday, the ADP private employment and Jobless Claims will serve as a preview for Friday's Nonfarm payrolls. A slowdown in hiring is expected, and those figures will be relevant for the Fed's monetary policy expectations. At the same time, market participants await a positive resolution regarding the debt-ceiling drama.
EUR/USD short-term technical outlook
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The EUR/USD posted another daily loss and continues to trend lower; however, the rebound from 1.0630 towards 1.0700 offers positive signs for the Euro going into the Asian session. The Euro needs to retake 1.0710 for the signal to be more convincing. Above that, 1.0750 is the next crucial resistance that, if broken, would strengthen the outlook for the Euro.
On the 4-hour chart, technical indicators still favor the downside, suggesting that the rebound could be short-lived. A decline below 1.0650 would expose the recent low, targeting the 1.0620 area, which should limit the downside.
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