EUR/USD continues to trade in negative territory below 1.0850, as Eurozone inflation data shows a decline in annual HICP inflation. This makes it challenging for the Euro to gain demand. Attention now turns to the US PCE inflation report.
Technical indicators suggest that EUR/USD is bearish, with the Fibonacci 23.6% retracement and the 100-period Simple Moving Average acting as key resistance levels at 1.0870. The Relative Strength Index (RSI) also indicates a bearish bias.
For support levels, the Fibonacci 50% retracement at 1.0840 is the next target, followed by the 200-period SMA at 1.0815 and the psychological level of 1.0800.
If EUR/USD manages to stabilize above 1.0870, it could encounter resistance at 1.0900 before reaching 1.0920/30.
On Thursday, EUR/USD experienced significant losses due to a strong US Dollar driven by positive macroeconomic data. The pair is trading below 1.0900 on Friday as investors wait for key inflation data.
The Eurozone’s Core Harmonized Index of Consumer Prices (HICP) is expected to rise by 0.7% in June, reflecting a strong growth compared to May’s increase of 0.2%. While this may weaken the Euro, a significant rebound is unlikely without a substantial upside surprise in the monthly Core HICP.
Later in the day, the US will release the Personal Consumption Expenditures (PCE) Price Index, a crucial indicator for inflation. Positive data in conjunction with the resilient US economy could lead to a boost in the USD.
Market volatility may increase towards the end of the European session due to quarter-end flows, potentially distorting the impact of data releases on the EUR/USD pair.
Eurozone Inflation Slows In June, But Remains Above Target
According to data from Eurostat, the annual Eurozone Harmonised Index of Consumer Prices (HICP) rose 5.5% in June, slightly lower than May’s increase of 6.1%. However, this still exceeded expectations for a 5.6% rise.
The Core HICP inflation also increased, reaching 5.4% year-on-year, up from May’s figure of 5.3%.
On a monthly basis, the HICP increased by 0.3% in June, compared to no growth in May. The core HICP inflation also saw a 0.3% increase in June, lower than the expected 0.7%.
It is important to note that the European Central Bank’s (ECB) inflation target is 2%.
The market’s pricing of ECB rate hikes is influenced by the bloc’s HICP figures. Currently, the markets are predicting an 89% probability of a 25 basis points ECB rate increase to 3.75% in July.
Key details from Eurostat show that food, alcohol & tobacco are expected to have the highest annual rate of inflation in June, followed by non-energy industrial goods, services, and energy.
Despite the mixed inflation data, the EUR/USD exchange rate remains relatively stable, currently trading at 1.0839.
The upcoming Eurozone inflation data will be closely monitored by the ECB and could have a significant impact on the ECB’s rates outlook and the value of the Euro.
ECB President Christine Lagarde has emphasized the ECB’s commitment to reaching its inflation goal. Lagarde’s statement followed weak business PMI and IFO sentiment data, which raised concerns about the bloc’s economy.
Analysts believe that inflation developments, rather than economic conditions, will be crucial in the ECB’s monetary policy decisions. Therefore, it is premature to expect a pause in the ECB rate cycle at this stage.
In May, inflation in Europe declined to 6.1% compared to April’s 7.0%. Core HICP inflation also dropped to 5.3% in May, largely due to Germany’s EUR49 travel pass.
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