- EUR/USD declines further as Eurozone CPI falls short of expectations.
- US Factory Orders and unexpected job data may hinder US Dollar recovery.
- The US dollar index hovers around a nearly six-week low at 98.60.
EUR/USD is experiencing a drop from 1.1450, moving back below 1.1400 as of this writing. The May Consumer Price Index (CPI) in the Eurozone indicates milder inflation pressures than anticipated, potentially allowing the European Central Bank (ECB) to pursue additional easing measures to bolster the economy.
The headline CPI remained flat in May, with the annual rate dipping below 2% for the first time in eight months after recording 2.2% in April. Core CPI also held steady, easing from 2.7% to 2.3% year-on-year, which was better than expected. Analysts had predicted a decline to 2.5%.
This data will likely be viewed positively by the ECB, which is expected to reduce interest rates for the eighth consecutive meeting on Thursday. ECB President Christine Lagarde maintains a neutral stance, stating that future decisions will rely on incoming data, but markets are likely to anticipate a lesser scope for rate cuts, which may exert some pressure on the euro.
The attention will soon shift to the factory order figures set for later today, which may show a significant decline in April, particularly in light of recent US economic data. In conjunction with lackluster PMI figures released on Monday, another disappointing reading could further challenge the fragile dollar.
Daily Digest Market Mover: US Dollar Weakness Continues to Pressure Euro
- The euro retains its overall positive momentum, despite some rebounds in the dollar. Having fallen below the key psychological barrier of 100.00 last week, the US Dollar Index DXY continues to dip below 99.00.
- Recent Eurozone data also indicated a decline in unemployment rates to 6.2% in April, as was expected, following an upwardly revised figure of 6.3% in March.
- Conversely, US manufacturing data showed worse-than-expected activity and longer delivery times, highlighting the detrimental impact of trade uncertainties on the sector.
- The US ISM Manufacturing PMI for May dropped to a six-month low of 48.5, down from 48.7, and fell short of market expectations for a climb to 49.5. It contributed to the dollar’s extended losses.
- In Europe, the May production PMI confirmed a projected figure of 49.4, marking five consecutive periods of improvement, although it still indicates a slight contraction in activity.
- The previously forecasted German PMI dropped from 48.8 to 48.3, underscoring the sluggish momentum in major economies of the region; however, its impact on the euro has been limited.
- Today’s agenda places particular emphasis on US factory orders following the weak manufacturing data observed on Monday. After a 3.4% increase in March, a 3% decrease is anticipated for April, introducing potential risks for the dollar.
- Later, the US job openings data will commence a series of labor market reports this week, with expectations holding steady at 7.1 million for April.
Technical Analysis: EUR/USD Struggles to Breach 1.1435 Resistance Level
EUR/USD reached a six-week high of 1.1450 on Monday but failed to solidify a hold above the resistance range between 1.1415 and 1.1435.
Nonetheless, the pair maintains a generally positive trend, bolstered by continued weakness in the US dollar keeping bearish pressures at bay for the time being. Current immediate resistance rests on the 1.1450 downtrend line, with attention also on the April 22 high of 1.1545.
If the pair does not break through 1.1450, the May 30 low of 1.1310 could come back into play, ahead of the 1.1220 support zone.
EUR/USD 4-Hour Chart
Euro FAQ
The euro is the currency for 19 EU nations in the eurozone, making it the second most traded currency globally, following the US dollar. In 2022, it constituted 31% of all forex transactions, with daily turnover over $2.2 trillion. The EUR/USD pair is the most traded currency pair globally, with all transactions making up about 30% of this, followed by EUR/JPY, EUR/GBP, and EUR/AUD.
The European Central Bank (ECB), based in Frankfurt, is responsible for monetary policy in the eurozone, setting interest rates and ensuring price stability. The ECB makes decisions based on data with meetings held eight times a year, led by six permanent members, including its president, Christine Lagarde.
Eurozone inflation is gauged by the Harmonized Index of Consumer Prices (HICP), serving as a critical economic indicator. If inflation rises unexpectedly, the ECB may have to increase interest rates to keep it in check, especially if it exceeds the 2% target, thereby typically strengthening the euro.
Additional economic indicators like GDP, PMIs, employment rates, and consumer sentiment can also sway the euro. A robust economy tends to draw foreign investment and could prompt the ECB to hike interest rates, strengthening the euro.
An essential indicator for the euro is the trade balance, reflecting the difference between exports and imports over a set period. A favorable trade balance enhances currency value due to heightened demand from foreign buyers.
