✔️ The EUR/USD currency pair is gaining strength above a key level as the US dollar struggles.
♻️ Market sentiment has been dampened by concerns over underwhelming Chinese data, Beijing’s restrictions on metals exports, and ongoing monetary tightening by major central banks.
📈 UK employment data is a focus this week leading up to the Bank of England’s meeting in August, with the Bank concerned about wage growth due to inflation struggles.
⏰ The US CPI data, released later in the week, will greatly impact the Federal Reserve’s policy decision on July 26.
💡 Governor Andrew Bailey addressed inflation in his recent speech, emphasizing the need to reduce it to the target of 2%. He also expressed hope for the development of enhanced digital currencies.
EUR/USD Gaining Strength Above Key Level as US Dollar Struggles
The EUR/USD currency pair is on the rise, surpassing the 1.0950 mark. This bullish move is driven by the US dollar’s struggle to maintain momentum amidst a positive opening on Wall Street. Technical analysis suggests a positive outlook for the pair, with immediate support identified at 1.0920.
Bulls Remain in Control as EUR/USD Approaches Key Level
On the 4-hour chart, bulls continue to control the market as technical indicators retreat slightly but remain above their midlines. Moving averages also remain below the current level. Buyers may gain confidence to push the pair beyond the 1.1000 threshold if buying interest resumes above 1.0970.
Market Sentiment Dampened by Worries Over Chinese Data and Monetary Tightening
However, concerns over underwhelming Chinese data and Beijing’s restrictions on metals exports have dampened market sentiment. Ongoing monetary tightening by major central banks has also added to fears of a global recession. The upcoming US CPI figures may provide relief if they fall below expectations.
Euro Loses Steam Following Decline in Investor Confidence
On the flip side, the Euro has lost some steam after the release of the Eurozone Sentix Investors Confidence report, which showed a decline from June. In the US, May Wholesale Inventories will be released along with announcements from several Federal Reserve speakers.
The Week Ahead
Get ready for a week packed with important UK employment data. This data release is one of the two major factors leading up to the Bank of England’s meeting in August. The Bank of England is especially concerned about wage growth due to the UK’s inflation struggles.
Market participants are keeping a close eye on this, as they expect the Bank of England’s policy to remain strong.
Currently, market participants are predicting a 44bps hike for the August meeting. However, if wage growth drops, rate hike expectations may be adjusted, and this could put pressure on the value of the sterling.
Later in the week, all eyes will be on the US CPI as the Federal Reserve meeting approaches in just over two weeks. The inflation reading will greatly impact the Fed’s policy decision on July 26. Although it would take a significant drop in inflation for the Fed to continue its recent pause in rate hikes.
On the Euro side, there isn’t much high impact data on the economic calendar except for the ZEW Economic Sentiment Index. It will be interesting to see how the ZEW print comes in, especially considering the lackluster data from the Euro Area over the past two weeks.
Governor Andrew Bailey’s Speech
In his recent speech, Governor Andrew Bailey addressed the pressing issue of inflation, which currently stands at a worrisome rate of 8.7%. He emphasized the imperative need to reduce it to the target of 2%.
However, he also brought some positive news as UK headline inflation is projected to decrease significantly in the upcoming months due to lower energy and commodity prices.
Despite the external challenges posed by the pandemic, the UK economy has showed resilience with an impressive unemployment rate of 3.8% and avoiding a recession thus far.
To counter inflationary pressures, monetary policy has been tightened with Bank Rate raised by almost five percentage points over the past twenty months. As a result, underlying inflationary pressures are expected to diminish as headline inflation decreases.
Governor Bailey then shifted the focus onto crypto assets. He identified two types: unbacked crypto like Bitcoin, which has high volatility and lacks intrinsic value, and stablecoins like Tether or US Dollar Coin, which are used for transactions but fail to meet the safety standards expected in the financial system.
These assets are not considered reliable forms of money. However, Governor Bailey expressed hope in the development of enhanced digital currencies that pass the necessary tests for singleness and settlement finality, stating that achieving this holds great promise and is within reach.
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