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EUR/USD Ends June with a Slight Drop, Weighed Down by Dollar Strength

ByOman Vasquez
Published 06/30/2024, 08:02 PM
EUR/USD
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  • EUR/USD traded sideways for most of the week around 1.0700, barely reacting to Friday's release of US Personal Consumption Expenditures (PCE) data.
  • Lack of top-tier macroeconomic data and caution ahead of the upcoming French elections kept investors cautious.
  • In-line US core inflation limits EUR/USD movement:
    • The Fed's favorite inflation gauge, PCE, showed a slight decrease to 2.6% y/y in May, from 2.7% the previous month, matching expectations.
    • The monthly PCE reading also matched the 0.1% forecast.
    • The slight drop in core inflation did not generate significant movement in the pair as the market had already anticipated it.
  • US dollar remains firm on Fed's hawkish stance:
    • Central bank imbalances continue to favor the dollar.
    • The Fed maintains a firmly hawkish stance compared to its peers' dovish tilt.
    • Fed officials' comments suggest a single 25bp rate cut this year, supporting the dollar.
  • Mixed economic data in Europe and the US:
    • Germany's IFO business climate survey and GfK consumer confidence survey missed expectations, weighing on the euro.
    • US Q1 GDP grew at an annualized pace of 1.4%, slightly better than forecasts.
    • US durable goods orders rose 0.1% in May.
  • Key events next week:
    • Monday: Germany releases preliminary June HICP estimate and the US releases June ISM manufacturing PMI. The eurozone also releases preliminary June HICP estimate and May retail sales.
    • Tuesday: ECB President Christine Lagarde and Fed Chair Jerome Powell participate in a panel at the ECB Forum on Central Banking, where they could offer clues on monetary policy.
    • Wednesday: Minutes of the latest FOMC meeting are released.
    • Friday: US releases June non-farm payrolls (NFP) report.
  • EUR/USD technical outlook:
  • Weekly chart: The pair remains above the monthly low of 1.0665.
  • Directionless 100 and 200 simple moving averages (SMAs) act as support.
  • Technical indicators do not provide clear directional clues.
  • Daily chart: The pair is trading below all its SMAs.
  • The 20 SMA has crossed below the directionless 100 and 200 SMAs, maintaining a bearish slope.
  • Momentum is modestly pointing upwards, while RSI is turning lower, anticipating a possible drop towards 1.0660.
  • Support: 1.0660, 1.0520
  • Resistance: 1.0760, 1.0800, 1.0850
  • Overall, EUR/USD is in a precarious position in the short term. Dollar strength and risk aversion weigh on the pair, while mixed data and caution ahead of the French elections limit its upside potential. A move below 1.0660 could open the door to further declines towards 1.0520, while a rebound above 1.0800 would require a significant shift in market sentiment.

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