Basic overview
USD:
The US dollar gained strength following last week’s assertive projections from the Fed, prompting a reassessment of interest rate expectations. To clarify, the Fed surprised many by forecasting a rate hike this year, while most anticipated no changes. Currently, there’s an expectation for a 32 basis point tightening by year-end, with a 29% chance of a July rate increase and a 60% likelihood for September.
Recently, there have been some softer price movements, which could be attributed to the significant drop in crude oil prices, returning to levels not seen since before the war. Additionally, it seems that the recent hawkish reevaluation might at least temporarily peak, indicating that we may need more positive surprises in NFP and CPI reports soon.
The greenback is likely to stay buoyed by incoming data, but it might experience some consolidation or dips if we don’t see strong catalysts before crucial US data is released.
EUR:
On the euro front, the ECB is holding onto its tightening stance, though most of the anticipated rate hikes seem to be priced in ahead of time. The central bank plans to pause until at least September to better understand economic developments over the summer. Markets are forecasting a tightening of about 28 basis points by year-end, with the next likely rate hike coming as soon as September.
This week’s Eurozone PMIs unsurprisingly indicated that inflation has slowed to its lowest level since February, just prior to the onset of the US-Iran conflict. While economic activity appears sluggish, the pressures are easing, suggesting potential improvements in the next few months. The latest ECB Consumer Expectations Survey also highlighted that consumers foresee lower inflation and improved growth in the coming year.
EURUSD Technical Analysis – Daily Time Frame
Reviewing the daily chart, the euro-dollar has fallen below a crucial support zone around 1.14, which now seems to be acting as resistance. There’s a chance for a decline toward the 1.10 level. Currently, we’re witnessing a retest where sellers may step in at these levels, but there’s also a risk of breaking above this resistance and pushing to new lows. Meanwhile, buyers are probably hoping for the price to rally back toward the downtrend line.
EURUSD Technical Analysis – 4 Hour Time Frame
On the 4-hour chart, the price has managed to exceed a minor downtrend line that marked the bearish trend. This could signal the start of a significant pullback toward the 1.1525 level, but it will require breaking through existing resistance to reach new heights.
EURUSD Technical Analysis – 1 Hour Time Frame
The 1-hour chart features a small uptrend line that characterizes the current pullback. Buyers are likely to stay near this trend line, accepting downside risks in their bid for new highs, while sellers will be looking for a breakdown to create new lows. The red line indicates today’s average daily range.
Future catalyst
The week wraps up with the final University of Michigan Consumer Sentiment Survey today.
