- EUR/USD recovers toward 1.0700 despite soft Euro area inflation data.
- The pair needs to stabilize above 1.0700 to stretch higher.
- Markets still see a very strong probability of one more ECB rate hike this month.
EUR/USD has regained its footing and recovered toward 1.0700 during the European trading hours on Thursday. The pair's near-term technical outlook paints a mixed picture but buyers could show interest in case it stabilizes above 1.0700.
Monthly data published by Eurostat showed Thursday that inflation in the Eurozone, as measure by the change in the Harmonized Index of Consumer Prices (HICP), declined to 6.1% on a yearly basis in May from 7% in April. Similarly, the annual Core HICP declined to 5.3% from 5.6%. Both readings came in below analysts' forecasts but they were not really surprising given the soft inflation figures from large Euro Area economies, such as Spain, France and Germany, reported earlier in the week.
Hence, markets are still pricing a more than 80% probability of the European Central Bank (ECB) raising its key rates by 25 basis points at the upcoming meeting. On the same note, "we need to continue our hiking cycle until we are sufficiently confident that inflation is on track to return to our target in a timely manner," ECB President Christine Lagarde reiterated following the inflation report.
Meanwhile, dovish Federal Reserve bets made a comeback late Wednesday after Fed Governor Philip Jefferson and Philadelphia Fed President Patrick Harker said a pause in rate hikes in June could be appropriate. According to the CME Group FedWatch Tool, markets now see a less than 40% chance for the Fed raising its policy by 25 bps to the range of 5.25%-5.5% at the June 14-15 meeting.
From a fundamental analysis point of view, the market positioning supports a bullish view for EUR/USD, at least in the near term. Additionally, the positive shift seen in risk mood, as reflected by a more-than-1% increase in the Euro Stoxx 50, could weigh on the US Dollar (USD) in the second half of the day and help the pair push higher.
In the early American session, investors will pay close attention to private sector employment data published by the Automatic Data Processing (ADP), which is forecast to show an increase of 170,000 in payrolls in May. A disappointing print should hurt the USD and vice versa but the impact of this data on the USD's valuation could remain short-lived ahead of Friday's Nonfarm Payrolls (NFP) report.
EUR/USD Technical Analysis
EUR/USD stays outside the descending regression but is yet to make a four-hour close above the 20-period Simple Moving Average (SMA), currently located at 1.0700. In case this level is confirmed as support, the pair could target 1.0740/50 (50-period SMA, Fibonacci 61.8% retracement level of the latest uptrend) and 1.0800 (100-period SMA, Fibonacci 50% retracement).
If EUR/USD drops below 1.0680 and returns within the descending channel, 1.0650 (mid-point of the descending channel) and 1.0630 (lower-limit of the descending channel) could be seen as next support levels.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.