- ECB officials make it clear that more rate hikes are on the way.
- The US dollar posted mixed results at the quiet beginning of the week.
- The EUR/USD pair consolidates the rebound from one-month lows.
On a quiet day, the EUR/USD traded flat, holding onto the 1.0800 level, after Friday's rebound from one-month lows. Despite the recovery, the bias remains on the downside. With no economic data, the focus was on central bank talk and negotiations regarding the US debt limit.
Federal Reserve (Fed) officials sounded hawkish, with James Bullard (a non-FOMC voter in 2023) saying interest rates need to go higher. Markets expect a pause in June from the Fed, but the odds of a 25 basis point hike are around 25%. The FOMC minutes on Wednesday, and the Core Personal Consumption Expenditures Price Index on Friday, will be critical for monetary policy expectations. At the same time, markets expect a resolution to the debt limit crisis.
On Tuesday, volatility will likely rise after a calm Monday. European PMIs are due, with Germany's HCOB Manufacturing PMI expected to recover slightly from last month's 44.5 to 45, still holding in contraction territory. In contrast, the Services index will likely fall from 56.0 to 55.5. In France, a rebound in Manufacturing from 45.6 to 46.0 is expected, while in the Services sector, a decline from 54.6 to 54.2 is anticipated. These numbers will offer the first glimpse of economic performance during May.
Markets see another rate hike from the European Central Bank (ECB) at the next meeting, but the consensus is weakening regarding what could happen afterwards. President Lagarde mentioned Monday that they are not pausing, while board member Isabel Schnabel explained that interest rates must be increased to sufficiently restrictive levels.
EUR/USD short-term technical outlook
The EUR/USD pair has held steady, showing signs of stability and holding up far from recent lows. However, in the short term, the overall trend remains tilted to the downside, with prices still well below key daily Simple Moving Averages (SMA), except for the 200-day SMA, located at 1.0467. More consolidations are likely into a broader range between the levels of 1.0850 and 1.0780.
On the 4-hour chart, the EUR/USD is moving sideways around 1.0810, with no apparent signs of a breakout. It remains within a downward channel, near a dynamic resistance at 1.0830. A break above this level would alleviate the bearish pressure and negate the pattern above. Conversely, a slide below 1.0800 would suggest weakness ahead for the Euro, towards the 1.0780 support level. If this level is breached, it could expose the 1.0760 lows, potentially accelerating towards 1.0715.
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