- The euro is expected to recover from its three-week low, likely rising above 1.1600.
- Trump suggests he might dismiss Federal Reserve Chairman Powell, later criticizing him for delaying fee adjustments.
- The US Producer Price Index (PPI) fell short of projections, reinforcing a dovish sentiment, yet this also supports the euro’s rise.
The EUR/USD pair maintained a gain of 0.25% on Wednesday, following President Donald Trump’s comments about possibly firing Federal Reserve Chairman Jerome Powell. This statement, coupled with a weaker-than-anticipated inflation report from producers, limited gains for both the euro and the US dollar. At this point, the pair was trading at 1.1633 after recovering from a low of 1.1562 over the past three weeks.
During the North American trading session, news broke that Trump might oust Powell. He later denied these claims but didn’t hold back on criticism, suggesting that Powell was late in reducing interest rates. On the data front, the US Producer Price Index (PPI) aligned with expectations, reflecting both the headline and core figures.
Atlanta Federal Reserve President Rafael Bostic emphasized focusing on significant issues rather than media coverage about the Fed. He referenced the recent Beige Book, which outlines a positive economic outlook as activity showed slight increases from late May to early July.
With the European Central Bank (ECB) monetary policy meeting approaching on July 24, traders remained hesitant on Wednesday, awaiting the release of June’s harmonized consumer prices (HICP). Recent comments from various members appear to show a division on whether to lower rates or maintain the current stance.
Daily Digest Market Movers: EUR/USD gains to 1.1600, yet remains delicate
- Bostic reiterated that he’s waiting for clearer data before deciding on interest rate cuts, noting inflation hasn’t met the Fed’s targets. He mentioned that the committee has a spectrum of opinions.
- The Fed’s Beige Book indicated rising uncertainty, yet economic activity has improved slightly. Although overall employment has increased, it is stunted by uncertainties in the economy and policy. Companies expect rising costs, particularly in raw materials.
- The US PPI rose 2.3% year-on-year in June, falling short of the 2.5% predicted and down from 2.6% in May. Excluding food and energy, the core PPI softened from 3.0% to 2.6%, again below forecasts. While inflation at the factory level indicates cooling, consumer inflation is rising, with June CPI approaching 3%, significantly above the Fed’s 2% goal.
- Current data shows a 95% likelihood that the Fed will keep interest rates steady during its July 30 meeting, leaving only a 5% chance of a 25 basis point reduction. Broadly, the money market is anticipating below 50 basis points, trending toward approximately 46 bps by year-end.
- Trump’s recent letter to the EU has raised concerns for the ECB, though traders seem confident that no significant changes will occur at the next meeting.
- ECB members have been sharing their views on monetary policy lately. Centeno advocates for either a pause or cut, aligning himself with Demarco, Vujcic, and Villeroy. Meanwhile, Fabiopanetta has flagged potential negative risks for growth if cuts are made, while Isabelle Schnabel believes rates are well-placed, aligning with Robert Holtzmann’s perspective to await more data.
Euro technical outlook: 20-day Euro/USD struggle at SMA, plus downside concerns
While the EUR/USD outlook leans neutral to positive, traders need to see a close above the 20-day Simple Moving Average (SMA) at 1.1681 to confirm an upward momentum. Achieving this could lead to further gains, potentially pushing above 1.1700. The daily peak on July 20th hit 1.1749, nearing previous highs of 1.1800 and 1.1829.
On the other hand, a drop below 1.1600 could signal more significant declines, with the next support level at 1.1562. Further breaks could lead to the 50-day SMA at 1.1482, followed by the 100-day SMA at 1.1254.
