EUR/USD has seen gains despite the US core PCE Price Index for June showing a steady growth of 2.6% annually, higher than the expected 2.5%. The Eurozone is expecting two more rate cuts from the European Central Bank (ECB) this year, which has weighed down the Euro’s outlook amidst economic uncertainties. In contrast, the US Dollar (USD) has seen a decline, with the US Dollar Index (DXY) dropping to near 104.30. The Federal Reserve is expected to keep borrowing rates unchanged at 5.25%-5.50% during its upcoming monetary policy meeting on Wednesday, which will determine the next moves for the USD.
Despite concerns over the Eurozone’s economic prospects, EUR/USD has continued to rise, reaching above 1.0850. The recent Flash German Hamburg Commercial Bank (HCOB) Composite Purchasing Managers Index (PMI) data for July showed a contraction, reflecting a decline in private sector business activity in Germany. Expectations of two more rate cuts by the ECB have added pressure on the Euro, as policymakers consider further easing measures necessary for economic recovery. The Euro’s performance will be closely tied to the upcoming Eurozone Harmonized Index of Consumer Prices (HICP) data for July.
In terms of technical analysis, EUR/USD has been able to steady above 1.0850, moving near 1.0860 after the US core PCE inflation data release for June. The shared currency pair remains within a Symmetrical Triangle pattern on a daily timeframe, with upside resistance at 1.0900. The 14-day Relative Strength Index (RSI) indicates that bullish momentum has faded, potentially leading to downward movement towards round-level supports near 1.0800 and 1.0700.
The Federal Reserve holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC consists of twelve Fed officials, including the Board of Governors members and regional Reserve Bank presidents. In situations where inflation is extremely low or during crises, the Fed may resort to Quantitative Easing (QE) to increase credit flow. Conversely, Quantitative Tightening (QT) involves the Fed reducing its bond purchases, which can strengthen the US Dollar. These policy decisions by the Fed can have significant impacts on the USD exchange rate in the global market.
In conclusion, amidst economic uncertainties in both the Eurozone and the US, the performance of EUR/USD continues to be influenced by various factors such as inflation data, central bank policy decisions, and economic indicators. The upcoming ECB rate cuts and the Fed’s monetary policy meeting will provide further insights into the future trajectory of EUR/USD. Traders and investors will closely monitor these events to make informed decisions in the foreign exchange market.
