- EURUSD trades above 1.0060 and trims its weekly losses, down 1.03% in the week.
- US Retail Sales and UoM Consumer sentiment exceed estimations, easing prospects of a 100 bps Fed hike.
- Interest rate differentials between the Fed and the ECB boost the EURUSD fall.
EURUSD buyers stepped in vigorously, defending the euro from falling below parity, with the major trading above the July 14 high 1.0058, though before dipped towards 1.0006, at the brink of the €1/$1 mark, but bounced off daily lows, and climbed towards current price levels. At the time of writing, the EURUSD is trading at 1.0095.
The financial markets narrative remains unchanged. Worries of higher inflation, central banks tightening, and recession jitters linger on investors’ minds. Nevertheless, global equities edge up in positive US economic data related to consumers, which would further cement the Fed’s case for a 75 bps hike. That said, the EURUSD will be at the mercy of interest rate differentials between the ECB and the Fed, which could favor the shared currency. However, the greenback recoils 0.52%, as shown by the US Dollar Index falling towards 108.070, a tailwind for the euro.
Also read: EUR/USD Forecast: Euro remains vulnerable despite reclaiming parity
US Inflation remains high
US Retail sales and UoM Consumer sentiment beat forecasts.
In the meantime, upbeat economic data give traders a respite, but not to USD buyers, which are booking profits ahead of the weekend. The US Department of Commerce reported that US Retail Sales rose by 1% YoY, exceeding expectations of 0.8%, and also left behind May’s dismal reading of -0.3%. Of late, the University of Michigan Consumer Sentiment came better than expected, with the index toping 51.1 vs. 49.9 estimated. The positive in the report is that inflation expectations tempered, with consumers seeing inflation at 2.8% over a 5-year horizon, lower than 3.1% in June. Although data is positive, that could boost the EURUSD because the data may ease Fed officials from hiking more than 75 bps.
US inflation remains high; additional Fed hikes ahead
Given that US inflation readings in the week remained higher, with the CPI and the PPI hitting 9.1% and 11.3% in year-over-year readings, EURUSD traders need to be aware of that. Further rate hikes from the Fed are expected, with money market futures STIRs portraying the Federal funds rate (FFR) at 3.55% by December, meaning that market participants expect at least 225 bps of tightening by the year’s end. Consequently, this would be a headwind for the EURUSD, despite the ECB’s guidance that it would begin raising rates for the first time in 11 years.
Fed speakers began to be vocal about rate hikes and emphasized that inflation is high
Elsewhere, Fed speakers have been entertaining EURUSD traders throughout the week. On Friday, the St. Louis Fed President James Bullard said it would not make any difference to hike 100 or 75 bps while adding that the pace could be adjusted for the rest of the year. Earlier in the week, Atlanta’s Fed President Raphael Bostic said everything is in play when asked about raising rates 100 bps in the July meeting. Later, the Cleveland Fed President Loretta Mester said they don’t need to decide on rates today but emphasized that inflation is “too high,” and the CPI report was uniformly negative. In the meantime, backing 75 bps is San Francisco’s Fed Mary Daly, but she also said that 100 bps is within the range of possibilities.
Recession fears remain as the US 2s-10s yield curve remains inverted
The US 2s-10-yield curve is still inverted for nine consecutive days, though less profound than in previous days- At the time of writing, the spread reduced to -0.189%, as traders’ fears about recession easied a tone. However, unless Fed officials express worries about economic growth, that would not deter them from aggressive tightening, which is negative news for EURUSD longs in the future.
ECB vs. Fed differentials, a headwind for the EURUSD
In July, both banks, the ECB and the Federal Reserve will host their monetary policy meetings. Currently, the ECB’s deposit rate lies at minus 0.50%, while the US Federal Reserve’s Federal funds rate (FFR) is at 1.75%, bolstering the appetite for the greenback. With expectations of the ECB hiking 25 bps and the Fed to move at least by 75 bps, differentials would widen further, to -0.25% (ECB) vs. 2.50% (Fed), meaning that the greenback would keep the upper hand, opening the door for further selling pressure on the EURUSD.
EURUSD Price Technical outlook
EURUSD remains heavy, as shown by the daily chart, with the daily moving averages (DMAs) residing well above the exchange rate. Wednesday’s correction offered EURUSD shorts a better entry price after hitting a daily high around 1.0122, but on Thursday, the major extended its losses, pushing below the parity. However, on Friday, the EURUSD buyers stepped in and kept the price above the July 14 high of 1.0058, meaning that achieving a daily close above it might open the door for a correction.
In the near term, the EURUSD is headed upwards. That said, the major’s first resistance would be 1.0100. Break above will expose the July 13 high at 1.0122, followed by July 11 daily high at 1.0183.
On the flip side, the EURUSD first support would be 1.0000. A breach of the latter will expose the fresh 20-year low at 0.9952. Once cleared, EURUSD sellers’ next challenge will be December 2002 lows around 0.9859.
EURUSD: Weekly forex analysis video: EUR/USD, GBP/USD, AUD/USD and more [Video]
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
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
EUR/USD comfortable below 1.0800 lower lows at sight
The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
Google starts indexing Bitcoin addresses
Bitcoin address data is live on Google search results after users realized on Thursday that the tech giant started indexing Bitcoin blockchain data. However, mixed reactions have followed the tech giant's reversed stance on the cryptocurrency.
A Hollywood ending for fourth quarter GDP
The latest revisions put Q4 GDP at 3.4%, the second fastest quarterly growth rate in two years. Much of the upside was attributable to stronger consumer spending, yet fresh profits data affirmed it was a good quarter for the bottom line as well with profits up by the most since the Q2-2022.