- EUR/USD climbs over 0.50% as traders adjust expectations for rate cuts and the political environment surrounding the Fed.
- Trump aims to nominate a replacement for Federal Reserve Governor Coogler by the week’s end.
- Fed officials Collins and Cook emphasize economic uncertainty and lackluster employment data, advocating for a cautious approach.
- Kashkari from the Minneapolis Fed still anticipates two interest rate cuts in 2025.
The EUR/USD pair increased by more than 0.50% on Wednesday, aided by a broad decline of the USD as traders started recalibrating their expectations regarding Federal Reserve interest rate cuts. At the same time, President Trump hinted at concerns over the Fed’s independence, announcing plans to nominate a new candidate to replace Federal Reserve Governor Adriana Coogler, who will be stepping down on August 8th.
Despite an empty economic calendar in the U.S. on Wednesday, several Fed officials shared their views. Boston Fed President Susan Collins underscored the uncertainty clouding the economy, suggesting a wait-and-see approach. Her colleague, Governor Lisa Cook, flagged ongoing concerns about July’s employment data, indicating potential for significant revisions during pivotal economic shifts.
The sentiments expressed by Collins and Cook reinforce the current strategy of maintaining interest rates until clearer signals of an economic slowdown emerge. Meanwhile, Minneapolis Fed President Neil Kashkari noted on Tuesday that he still expects two interest rate cuts later this year.
In the backdrop, President Trump reiterated his intention to nominate Coogler’s successor soon.
Across the Atlantic, recent data showed a dip in German factory orders for June. However, retail sales in the Eurozone reported improvement over the past twelve months.
This week, traders are also keeping an eye on U.S. unemployment claims, alongside German industrial production figures and trade balance that could indicate the health of the largest economy in the European Union.
Daily Digest Market Mover: Euro Gains on Broad Dollar Weakness
- The ISM Services PMI slipped from 50.8 in June to 50.1 in July, lowering hopes for a rebound to 51.5. Even though it remains in the expansion zone, the employment component contracted further, with prices reaching their highest since October 2022. This somewhat pessimistic report has led to a reversal in the U.S. yield curve, highlighting increasing investor anxiety about a potential economic slowdown.
- Kashkari noted the economy is indeed slowing, even as it has withstood tariffs reasonably well. He suggested that while the tariff impact on inflation is still murky, it might be prudent to consider policy rate adjustments soon. Though he maintains a prediction of two interest rate cuts, he warned that an increase in tariffs could prompt the Fed to reassess its approach.
- New data indicated that German industrial orders declined by 1% month-on-month, underestimating projections, though this was a smaller contraction than expected.
- In the Eurozone, the HCOB Services PMI displayed signs of a slight downturn, falling to 48.5 from 49.7 in the previous month, which was lower than anticipated.
Technical Outlook: EUR/USD Breaks 1.1650, Eyes on 1.1700
During the trading session, the EUR/USD successfully breached the crucial resistance at 1.1600 and decisively moved past the 20-day Simple Moving Average (SMA) at 1.1625. The pair currently suggests a neutral bias, while the relative strength index (RSI) indicates that buyers are gaining traction. Yet, a challenge remains to surpass the recent cycle high of 1.1788, observed on July 24th. Achieving this would set the stage to test the year’s top levels of 1.1800 and 1.1829.
On the flip side, any pullbacks below 1.1600 may direct attention toward the 50-day SMA at 1.1598 and potentially the next support at 1.1500 or the August low of 1.1391.
