EUR/USD stays under pressure below 1.0500
EUR/USD is having a difficult time staging a rebound after having dropped below 1.0500 earlier in the day. FOMC Chairman Powell's relatively optimistic comments on the economic outlook provided a boost to the dollar in the second half of the day, weighing on the pair.
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Euro/dollar has failed to break above the 4h-50 SMA, despite constant attempts. It is also capped by the 4h-100 SMA. Moreover, after benefiting from higher lows, the pair has now been setting lower lows and also lower highs.
Support awaits at 1.05, a psychologically significant level, followed by 1.0485 and 1.0465, both serving as cushions of late. Further down, 1.0440 and 1.04 await.
Resistance is at 1.0535 and 1.0555.
Spain is hot, Germany not – perhaps the flocking of northern tourists to the warm Mediterranean sees has pushed annual inflation in Spain to 10%. However, Europe's largest country has not experienced double-digit inflation. On the contrary – the Consumer Price Index came out at 7.6% in Germany, below 7.9% expected.
Inflation figures have tended to surprise to the upside, but this fresh German figure from June is a surprise downside surprise and serves as the first reason to expect a weaker euro. European Central Bank President Christine Lagarde is set to take to the stage with her peers from the US and the UK, with less ammunition to support a rapid pace of rate hikes.
The second reason to expect EUR/USD to fall is hot inflation in the US – and more precisely, expectations for future price rises, which are of high importance to the Federal Reserve. The Conference Board's Consumer Confidence release included an upgrade of inflation expectations from 7.5% to 8%. When everybody expects higher prices, it becomes a self-fulfilling prophecy.
Fed Chair Jerome Powell previously described an increase in consumers' expectations as "eye-catching." Will he repeat that again? In the panel discussion, Powell may refrain from commenting on the next decision in July, but any stark message against higher prices could send the dollar higher.
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Fresh signs of economic slowdown exacerbate recession-related fears. Central bankers may be cautious or aggressive, but anyway can do little about energy and food prices. EUR/USD's long-term bearish stance remains intact, spikes will likely be seen as selling opportunities.