- EUR/USD remains pressured towards yearly low after three-week downtrend.
- Hawkish Fedspeak, Fed’s 75 bp rate hike joins recession fears to underpin US dollar.
- ECB fails to impress bulls despite teasing rate hikes.
- Lagarde’s testimony eyed for fresh intraday clues amid light calendar.
EUR/USD begins the new trading week by extending Friday’s retreat from 1.0500, staying pressured by the press time after three consecutive weekly falls. The major currency pair bears the burden of the market’s rush towards the haven, which in turn joins hawkish Fed bets to favor the US dollar.
US Dollar Index (DXY) manages to post a three-week uptrend despite falling around the Fed’s surprise interest rate lift by 75 basis points (bps). The greenback’s following gain could be linked to the broad chatters of a 1.0% rate hike and hawkish Fed policymakers. However, talks of the US economic slowdown seemed to have probed the greenback bulls.
On Friday, US Industrial Production for May dropped to 0.2% MoM, below 0.4% market forecast and 1.4% prior. The details suggested steady Capacity Utilization and a contraction in the manufacturing output. While the US data were softer, the Federal Reserve’s (Fed) bi-annual Monetary Policy mentioned the Gross Domestic Product (GDP) appears to be on track to rise moderately in the second quarter, per Reuters.
Considering the data, Fedspeakers were more confident over their latest vote for a 0.75% rate hike. Among them was Minneapolis Fed President Niel Kashkari who backed another 75 bps rate hike in July.
On the other hand, the Eurozone’s final prints of May CPI confirmed 8.1% YoY and 3.8% MoM figures but the policymakers were a bit hawkish. That said, European Central Bank’s (ECB) policymaker Klaas Knot said, per Reuters, that the ECB could opt for several 50 bps rate hikes in case the inflation situation in the euro area were to worsen.
It’s worth noting that the receding covid fears in China and chatters surrounding the US readiness for easing China tariffs are some positives favoring the risk appetite despite major negatives that keep the US dollar on the bull’s radar. Additionally, French President Emmanuel Macron's losing of absolute majority while winning 245 seats out of 577 in legislative elections could also weigh on the EUR/USD prices.
Amid these plays, the US equities marked an unconvincing relief rally. It’s worth noting that today’s testimony by ECB President Christine Lagarde and Wednesday’s Testimony from Fed Chairman Jerome Powell are the week’s key events to watch for clear directions.
Technical analysis
EUR/USD pair’s pullback from a six-week-old horizontal support area surrounding 1.0630 keeps directing it to the yearly low surrounding 1.0350. That said, the 10-DMA level of 1.0510 restricts immediate upside.
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