- The EUR/USD retreated but remains within its recent range.
- The US Dollar benefits from Fed rate hike expectations.
- Eurozone: Inflation in Italy slowed in June; more CPI numbers due on Thursday.
The EUR/USD dropped on Wednesday, briefly reaching levels under 1.0900 and then rebounding during the American session, trimming losses. The Euro remains supported by European Central Bank (ECB) rate hike expectations, reaffirmed by Lagarde's comments. At the same time, rising bets of a rate hike in July from the Federal Reserve (Fed) support the US Dollar.
Inflation data from the Eurozone started to roll out. The Harmonised Consumer Price Index in Italy slowed to 6.7% in June from 8%.
On Thursday, Spain and Germany will report inflation, and on Friday, the Eurozone (EZ) CPI is due. The EZ headline is expected to decline from 6.1% to 5.6%. A different report released on Wednesday showed a decline in the GfK Consumer Confidence survey, with a decline from -24.4 to -25.4. It is the first decline since October.
Despite the decline in headline inflation, ECB members continue to talk about persistent inflation and the need to do more. Speaking at the ECB Forum in Sintra, Lagarde reiterated that rates will likely rise in July. Regarding September, she said that it is "data-dependent".
Recent better-than-expected US economic data has boosted expectations of another rate hike from the Fed at the July meeting, offering an impulse to the US Dollar. More data is due on Thursday, with Jobless Claims and the third Q1 GDP estimate. On Friday, the Core Personal Consumption Expenditure is due and will be critical. The recent up move of the US Dollar looks stronger against Antipodean currencies but not necessarily versus the Euro, which also remains strong in the market.
EUR/USD short-term technical outlook
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The EUR/USD dropped on Wednesday but held above the 20-day Simple Moving Average (SMA). It continues to trade in a range, holding above 1.0900 and limited below 1.1000. Risk continues to be tilted to the upside in the daily chart; however, technical indicators are starting to turn to the downside, such as the Relative Strength Index and Momentum. Overall, the pair shows a lack of clear direction.
On the 4-hour chart, the bias is to the downside, with the price under the 20-period SMA, which stands at 1.0925. A slide below 1.0900 could set up the scenario for a test of the next support located at the 1.0860/65 area. If the Euro regains 1.0930, it would strengthen the outlook. The next level to watch is the dynamic resistance at 1.0960. A consolidation above 1.0960 would strengthen the outlook for the Euro, exposing the weekly high at 1.0977, the last defense for a test of 1.1000.
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