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EUR/USD remains vulnerable amid EU election uncertainty and Fed's outcome

  • EUR/USD stays on the back foot near 1.0720 as the European Union’s political uncertainty weakens the Euro’s appeal.
  • The ECB refuses to commit to a specific interest-rate trajectory.
  • The US Dollar’s appeal remains firm ahead of the Fed’s decision and the US CPI report.

EUR/USD shows weakness near the immediate support of 1.0720 in Tuesday’s American session. The major currency pair remains on the back foot as the Euro shifted into a bearish trajectory following French President Emmanuel Macron’s unprecedented decision to dissolve parliament and call for a snap election, which spooked political stability.

Macron’s decision to call for a snap election came after exit polls for EU parliamentary elections showed that seats won by Jordan Bardella-led-far-right National Rally came in at 32%-33%, more than twice the votes secured by Macron’s Centrist alliance.

European Central Bank (ECB) policymakers' cautious approach to the interest rate outlook also fails to uplift the Euro. ECB policymakers worry that progress in inflation towards the bank’s target could stall as wage growth appears to be stubborn. On Monday, ECB President Christine Lagarde said in an interview that last week’s rate-cut move doesn’t commit to any linear declining path. "There might be periods where we hold rates again,” Lagarde said, according to Reuters.

Daily digest market movers: EUR/USD falls further as US Dollar rises with focus on US CPI and Fed policy

  • EUR/USD declines to near 1.0720 as traders focus on the United States Consumer Price Index (CPI) data for May and the Federal Reserve’s (Fed) monetary policy decision on Wednesday. 
  • Annual core inflation, which strips off volatile food and energy prices, is estimated to have decelerated to 3.5% from April’s reading of 3.6%. In the same period, the headline inflation is expected to have grown steadily by 3.4%. While monthly headline inflation is forecasted to have grown at a slower pace of 0.1% from the former release of 0.3%, the core CPI is estimated to have maintained a steady growth rate of 0.3%. The US CPI report will indicate whether price pressures are on course to return to the desired rate of 2%. 
  • Meanwhile, the Fed is widely anticipated to keep interest rates steady in the range of 5.25%-5.50% for the seventh consecutive time. Therefore, investors will pay more attention to Fed Chair Jerome Powell’s press conference and the dot plot, which will indicate where policymakers see the federal fund rate heading. The CME FedWatch tool shows that 30-day Fed Fund Rate pricing data suggest only one rate-cut move this year, which could be announced either in the November or December meeting.
  • Fed policymakers said they want to be sure about sustained progress in the disinflation process before considering rate cuts. They have already warned that premature rate cuts could revamp price pressures again. Increasing chances that the Fed will maintain the current interest rate framework for a longer period has improved the US Dollar’s appeal. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds gains above the crucial support of 105.00.

EUR/USD Price Today:

Euro PRICE Today

The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Swiss Franc.

 EURUSDGBPJPYCADAUDNZDCHF
EUR -0.37%-0.25%-0.24%-0.20%-0.15%-0.30%-0.12%
USD0.37% 0.10%0.13%0.15%0.19%0.06%0.23%
GBP0.25%-0.10% 0.00%0.04%0.08%-0.06%0.08%
JPY0.24%-0.13%0.00% 0.03%0.05%-0.09%0.07%
CAD0.20%-0.15%-0.04%-0.03% 0.04%-0.10%0.04%
AUD0.15%-0.19%-0.08%-0.05%-0.04% -0.14%0.00%
NZD0.30%-0.06%0.06%0.09%0.10%0.14% 0.15%
CHF0.12%-0.23%-0.08%-0.07%-0.04%0.00%-0.15% 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

Technical Analysis: EUR/USD declines toward upward-sloping border of triangle

EUR/USD extends its losing streak for the third trading session on Tuesday. The major currency pair weakened after failing to hold the breakout of the Symmetrical Triangle formation, suggesting that the overall trend has turned bearish. The shared currency pair has now returned inside the triangle formation and is expected to find support at 1.0636, near the upward-sloping order of the chart pattern plotted from 3 October 2023 low at 1.0448.

The long-term outlook of the shared currency pair has also turned negative as prices dropped below the 200-day Exponential Moving Average (EMA), which trades around 1.0800.

The 14-period Relative Strength Index (RSI) falls sharply to 40.00. A decisive break below this level would trigger bearish momentum.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Read more.

Next release: Wed Jun 12, 2024 12:30

Frequency: Monthly

Consensus: 3.4%

Previous: 3.4%

Source: US Bureau of Labor Statistics

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Author

Sagar Dua

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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