Euro profits ease tensions as Sino-US trade talks, with ECB officials showing limited interest rate cuts ahead.
- ECB’s Kazimir and Schnabel push back expectations of extended mitigation.
- The NY Fed Survey shows that inflation expectations have declined, but household outlook has deteriorated.
The EUR/USD made gains during Monday’s North American session, buoyed by positive sentiment from the ongoing US-China tariff discussions happening in the UK. This momentum pushed the currency pair above 1.1400, coupled with a notable “hawkish” shift from the European Central Bank (ECB), rising over 0.25%.
The market’s mood shifted favorably due to Sino-US developments. Additionally, a report from the Wall Street Journal indicated that Trump granted the US Treasury Secretary the authority to ease China’s export restrictions. While this news initially bolstered the dollar, risk-seeking investors subsequently drove US stocks higher, causing the day’s sentiment to dampen.
In the US, the economic calendar was sparse, highlighted by the New York Fed’s Consumer Expectations Survey (SCE), revealing low inflation expectations across one, three, and five-year horizons. However, despite these findings, sentiments around financial situations for households reflected a negative turn.
In the Eurozone, although many economic signals are limited, ECB officials, including Bundesbank’s Joachim Nagel and Isaber Schnabel, emphasized the need for flexibility in interest rate discussions. Schnabel suggested there shouldn’t be an expectation for sustained alignment with the Fed, and Kazimir expressed a hawkish stance, indicating that the central bank is nearing the end of its easing phase.
Daily Digest Market Mover: EUR/USD is making progress with ECB Hawkish Tilt
- The New York Fed’s SCE highlighted a drop in one-year inflation expectations from 3.6% to 3.2%, while three-year forecasts decreased from 3.2% to 3%. Over a five-year span, there was a decrease from 2.7% to 2.6%.
- Strong US job figures from last Friday, along with anticipated inflation data due Wednesday, imply the economy remains robust, suggesting the Federal Reserve is likely to maintain its current stance.
- Reports indicate that ECB officials are leaning towards suspending interest rate cuts in their upcoming July meeting. Some believe the period of decreasing borrowing costs has concluded, while others predict another adjustment could occur in September.
- Expectations among financial market participants suggest no cut to ECB’s deposit facility fees within the July policy meeting.
Euro Technical Outlook: EUR/USD regains 1.1400 in mute sessions
The upward trajectory for EUR/USD appears intact, with a pattern of successive highs and lows. Additionally, the relative strength index (RSI) indicates a bullish outlook. However, to move toward higher values, the Bulls must close daily above 1.14. This could lead to the next resistance level at around 1.1450, followed by 1.15 and then potentially 1.16.
If EUR/USD dips below 1.14, the next support level is at a two-day low of 1.1344 recorded in June. A break below this level could expose moving averages at 1.1318, with further support at 1.13 and 1.1268.
