CFD Trading Rate Euro vs US Dollar (EURUSD)

• EUR/USD remains under selling pressure near 1.0640 on the stronger USD on Friday.
• Fed’s Bostic said US inflation is expected to return to target at a slower pace than previously anticipated.
• ECB policymakers noted the central bank should cut rates in June to avoid falling behind the inflation curve.

The EUR/USD pair extends its downside around 1.0640 after retreating from weekly peaks of 1.0690 on Friday during the early Asian session. The hawkish comments from Federal Reserve (Fed) officials provide some support to the US Dollar (USD). Later in the day, Chicago Fed Austan Goolsbee is set to speak.

On Thursday, the number of US citizens that filed new claims for unemployment benefits rose by 212K for the week ending April 13 from the previous weekly gain of 212K (revised from 211K). This figure came in below the market consensus of 215K, according to the US Department of Labor. The report indicated that the labor market remains resilient and investors expect that the US Fed might delay cutting interest rates until September.

Fed Chair Jerome Powell noted on Tuesday that monetary policy needed to be restrictive for longer as inflation continued to surprise on the upside in the first three months of the year. Atlanta Fed President Raphael Bostic said on Thursday that US inflation is expected to return to the 2% target at a slower pace than many had anticipated. Bostic added that he’s comfortable being patient and rate cuts are likely by year end. Meanwhile, New York Fed President John Williams said that he doesn't feel an urgency to cut rates and that monetary policy is in a good place. The strong US economic data and the higher-for-longer US rate narrative continue to lift the Greenback and act as a headwind for the EUR/USD pair.

Across the pond, the European Central Bank (ECB) signaled that it might start cutting the interest rate in June. ECB Vice President Luis de Guindos said on Thursday that the central bank will be ready to reduce the restrictions on its monetary policy stance if the data evolves as it expects. The ECB policymaker François Villeroy de Galhau emphasized that the ECB should cut interest rates in June to avoid falling behind the inflation curve.

Elsewhere, ECB policymaker Joachim Nagel said a June rate cut appeared increasingly likely, although certain inflation data remains higher than expected. The growing speculation that the ECB will begin to cut the interest rate earlier than the US Fed exerts some selling pressure on the Euro (EUR) and caps the EUR/USD’s upside for the time being.

• Euro recovery fails ahead of 1.0700 and ECB policymakers point to a June rate cut.
• In the US, strong employment levels and some hawkish comments by Fed’s Williams have provided a fresh boost to the USD.
• The EUR/USD remains vulnerable, dangerously close to the mid-term low at 1.0600.

The Euro recovery has been capped a few pips shy of the 1.0700 area, and the pair pulled lower on Thursday, to hit intra-day lows at 1.0645. The dovish comments by ECB policymakers and strong US data endorsing the Fed’s “higher for longer” outlook have weighed the common currency.

Earlier today ECB’s Vice-President Francoise Villeroy, affirmed that, barring a major surprise the bank will cut rates in June. These words have been echoed by the Governor of the Austrian central bank and notorious hawk, Robert Holzmann.

US data confirms the strong economic outlook

In the US, macroeconomic data has endorsed the picture of a strong economy with a tight labour market. Jobless claims remain steady at relatively low levels while a manufacturing activity gauge has reached its best reading in two years.

Beyond that, the New York Fed President, John Williams has reiterated that there is not an urgency to lower interest rates, which has sent US yields and the US Dollar up from intra-day lows.

The near-term bias remains neutral, with the pair unable to put a significant distance from five-month lows. 1.0700 is the immediate resistance, followed by 1.0730 and 1.0755. Support levels are 1.0605 and 1.0553.

• EUR/USD recovers after Lagarde says “the game is not over” with inflation. 
• Slow economic growth and sticky inflation in the Eurozone could weigh on EUR/USD. 
• Federal Reserve Chairman Powell talks about keeping rates higher for longer, and longer.

EUR/USD is trading in the 1.0680s on Thursday, marginally higher on the day, building on the U-turn it began midweek after touching down at the 1.0601 lows of April. 

It is still too early to say whether EUR/USD is undergoing a correction of the downtrend or a reversal, given the strong bullish recovery so far – of 80 pips in 36 hours – keeps bullish hopes alive. 

EUR/USD rebound gains momentum on smidgin of doubt 

EUR/USD’s rebound got an added boost from comments by European Central Bank President Christine Lagarde, who said at a speech in Washington late on Wednesday that “The game (of fighting inflation) is not over,” despite adding, “Growth in Europe is mediocre, much slower than in the US. We’re clearly seeing timid signs of recovery.” 

Lagarde’s comments contrast a little with those of some of her ECB colleagues who have said inflation is behaving as it should and tracking nicely lower. It introduces a smidgen of doubt into whether the ECB really will start cutting interest rates in June as markets believe. The maintenance of higher interest rates for longer is positive for the Euro as it attracts more inflows of foreign capital.

Her remark about “Growth in Europe is mediocre,” echoes the view of Rabobank FX Strategists, who argue that whilst there is no risk of a “crisis” in the region, “ the combination of slow growth in the Eurozone and nagging budget pressures could lower the defenses of the EUR going forward." Rabobank suggests a fall to 1.0500 is probable, with risks tilted to the downside. 

EUR/USD pressured by talk of rates for longer in the US

EUR/USD plummeted at the start of April as bets the Federal Reserve (Fed) would cut interest rates in June quickly melted away amidst stickier-than-expected inflation and robust macroeconomic data. 

On Tuesday, Federal Reserve Chairman Jerome Powell said high interest rates would likely be around for longer than previously expected given the little progress being made on inflation in recent months. 

The Fed’s Beige Book, a comprehensive economic survey, on Tuesday repeated the view that little progress had been made on inflation but added that growth and employment were a little stronger than expected.

Everything points to the Fed maintaining interest rates at their relatively high (upper limit of 5.5% for the Fed Funds Rate) levels for a while until the behemoth of inflation is finally slain. 

Indeed, The CME FedWatch tool, a market gauge of the probability of Fed rate cuts, is showing only a 16% probability of a cut in June (from over 70% only a few weeks ago) whilst the odds of a cut by September are now around 70%.   

Technical Analysis: EUR/USD undertakes a youthful recovery

EUR/USD has undergone a volte-face after hitting a floor at 1.0601 on Tuesday (circled). The question now, as most technical questions are, is whether this is a reversal or just a pullback in an ongoing downtrend?

EUR/USD Daily Chart

Momentum has been strong in the short span of the recovery so far, and the Relative Strength Index (RSI) has moved out of oversold, giving a buy signal – another good sign. However, it is too early to draw conclusions. 

The intermediate-term downtrend is probably still in force and in the absence of further proof of a reversal, likely to resume and push the exchange rate lower again. 

Resistance from previous swing lows nearby at around 1.0700 could act as an obstacle to the recovery and see a rotation back down. The level will, in any case, offer technical resistance and provide a rallying point for bears even if their cause is doomed. 

A break below the 1.0601 April lows would post a lower low and indicate a continuation of the downtrend. After that, the next concrete target is at 1.0446, the October 2023 low.

• EUR/USD rebounds to 1.0688 amid the weaker US Dollar on Thursday. 
• The bearish outlook of the pair remains intact below the key 100-period EMA. 
• The first upside target is seen at 1.0700; the initial support level is located at 1.0622.

The EUR/USD pair extends its recovery near 1.0688 on Thursday during the early European trading hours. The rebound of the major pair is backed by the selling pressure in the US Dollar Index (DXY) to 105.78. However, the upside of EUR/USD might be limited as the market expected the European Central Bank to cut the interest rate in June, which weighs on the Euro (EUR) against the Greenback. 

From a technical perspective, EUR/USD keeps the bearish vibe unchanged on the four-hour chart as the major pair is below the key 100-period Exponential Moving Average (EMA). However, the Relative Strength Index (RSI) stands in bullish territory around 55, suggesting that further upside cannot be ruled out. 

The first upside barrier of the major pair will emerge near the 50-period EMA and round figure at 1.0700. The additional upside filter to watch is the 100-period EMA at 1.0745. Further north, the next hurdle is seen near a low of March 22 and psychological level at 1.0800, en route to a high of April 9 at 1.0885. 

On the flip side, the initial support level for the major pair is located near a low of April 12 at 1.0622. The next contention level to watch is the 1.0595–1.0600 zone, indicating the lower limit of the Bollinger Band and round mark. Any follow-through selling below the latter will pave the way to a low of November 2 at 1.0565.

EUR/USD four-hour chart

• EUR/USD posts modest gains near 1.0672 on the softer USD on Thursday. 
• Fed’s Powell said the central bank might take longer than expected to achieve the 2% target.
• ECB policymaker said a rate cut looks increasingly likely in its June meeting. 

The EUR/USD pair edges higher to 1.0672 on Thursday during the early Asian session. The recovery of that major pair is bolstered by renewed selling pressure in the US Dollar (USD) and a risk-friendly environment. Investors will monitor the usual weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, the CB Leading Index, and Existing Home Sales, due later on Thursday. 

The Federal Reserve's (Fed) rate cut hopes were faded. Fed Chairman Jerome Powell commented on Tuesday that the recent data have clearly not given Fed greater confidence and indicate that it's likely to take longer than expected to achieve the central bank's 2% target. The hawkish comments from the Fed’s Powell might provide some support to the Greenback and cap the upside of the EUR/USD in the near term. Investors see a nearly 71% chance that the Fed will cut interest rates in September, according to the CME FedWatch Tool.

On the other hand, investors increase their bets that the European Central Bank (ECB) will cut the interest rate in June. The ECB policymaker Joachim Nagel said on Wednesday that a rate cut looks increasingly likely for June, but certain parts of the incoming inflation data still look higher than desired. Meanwhile, ECB policymaker Bostjan Vasle said that the deposit rate should be lower to 3% by the end of the year from a record high of 4% currently if disinflation continues as expected. Interest rate differentials have been a primary driver of the major pair. The dovish stance from the ECB drags the Euro (EUR) lower and creates a headwind for the EUR/USD pair.  

• EUR/USD edges down ahead of HICP inflation data for the Eurozone. 
• Speeches by several key ECB governing council members could also impact EUR/USD. 
• EUR/USD enters oversold levels on the daily chart, indicating risk of a pullback. 

EUR/USD trades slightly down on Wednesday in the lower 1.0600s, as it clocks up a sixth consecutive day of losses. 

The pair is entering the oversold zone on charts, suggesting traders may be operating with more caution. Whilst this does not definitively indicate an end to the downtrend itself, it does up the odds of an upward correction potentially evolving on the horizon. 

In terms of volatility, the main events on the calendar for EUR/USD on Wednesday are the final estimates for Eurozone March inflation data, and several speeches by European Central Bank (ECB) officials.

EUR/USD: Traders await final estimates, ECB speeches

EUR/USD could see some volatility after the release of the final estimates for Eurozone March Inflation data at 9:00 GMT on Wednesday. Levels of inflation inform the decisions of the ECB regarding the setting of interest rates, a key driver in the FX markets.

If the revisions deviate from the initial estimates the pair may fluctuate.

Flash estimates for the Harmonized Index of Consumer Prices (HICP) in March, showed a 2.4% rise year-on-year, down from 2.6% previously. The final estimate is also expected to show 2.4%. 

The flash estimate for Core HICP showed a 2.9% rise YoY from 3.1% previous, and 0.8% month-on-month from 1.1% in February. Again, in both cases, the final estimate is expected to remain unchanged.  

Any deviation in the data, however, is likely to move EUR/USD. 

A lower-than-expected final estimate would solidify expectations that the ECB will go ahead and cut interest rates in the near-term, probably in June. Since lower interest rates, or their expectation, tend to reduce foreign capital inflows, such a result would probably depreciate to the Euro (EUR) and push down EUR/USD. 

If HICP is revised up, this might raise some doubt about whether the ECB will go ahead with a rate cut in June, which could strengthen the Euro and see EUR/USD recover. 

Speeches by key ECB members throughout the day, including ECB Executive Board Member Piero Cipollone, ECB Executive Board Member Isabel Schnabel and President Christine Lagarde herself could also impact the pair’s volatility. 

The case for an imminent cut in interest rates – the ECB’s key main refinancing operations rate stands at 4.50% – was strengthened on Tuesday after ECB President Christine Lagarde said that the ECB will cut rates soon, bar a surprise, and that the ECB was keeping a close eye on Oil prices due to tensions in the Middle East. 

Technical Analysis: EUR/USD bears are oversold

The EUR/USD pair is firmly in a downtrend on both its short and medium-term time frames, since peaking and rolling over at 1.1139 in December. 

EUR/USD Daily Chart

The downtrend thesis is supported by the fact that the pair is trading below all its key major moving averages – the 50-day, 100-day and 200-day Simple Moving Averages (SMA). 

It is making lower lows and lower highs and this trend is biased to continue – with one caveat. 

The Relative Strength Index (RSI) momentum indicator is flashing oversold on the daily chart. At the moment this is only a warning for short-traders not to add to their positions, however, if the RSI were to exit oversold and rise back above 30, it would be a sign the pair was correcting and for short-traders to close their positions and open longs. 

As things stand it is still possible the pair could continue lower and even if there is a correction the dominant downtrend is still likely to resume. The next key downside target for the pair is the 2023 lows at 1.0446. 

If a pullback evolves, meanwhile, a possible target could be the swing low at 1.0700.

• EUR/USD rebounds to 1.0625 in Wednesday’s early European session. 
• The pair keeps the negative outlook unchanged below the key EMA; RSI indicator holds in bearish territory.
• The initial support level is seen at the 1.0600–1.0605 zone; the immediate resistance level will emerge at 1.0710.

The EUR/USD pair posts modest gains around 1.0625 after bouncing off the fresh yearly low of 1.0600 on Wednesday during the early European trading hours. However, the further upside might be limited amid the hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell and growing speculation that the European Central Bank (ECB) will start lowering interest rates in June. Investors await the Eurozone Harmonized Index of Consumer Prices (HICP) for March and ECB President Lagarde's speech for fresh catalysts. 

Technically, EUR/USD maintains the bearish stance unchanged as the major pair is below the key 100-period Exponential Moving Average (EMA) on the four-hour chart. The downward momentum is backed by the Relative Strength Index (RSI), which holds in bearish territory around 32, indicating that further downside looks favorable. 

The 1.0600–1.0605 region acts as an initial support level for the major pair, portraying the confluence of the lower limit of the Bollinger Band and psychological level. Further south, the next contention level to watch is a low of November 2 at 1.0565, followed by the 1.0500 round mark. 

On the upside, the immediate resistance level of EUR/USD will emerge near the 50-period EMA at 1.0710. The additional upside filter to watch is the 100-period EMA at 1.0756. A decisive break above this level will expose a low of March 22 and the round figure at 1.0800, en route to a high of April 9 at 1.0885. 

EUR/USD four-hour chart

• EUR/USD remains on the defensive around 1.0615 in Wednesday’s early Asian session. 
• Fed’s Powell said it's appropriate to allow restrictive policy to continue to work, given the strength of the labor market. 
• ECB’s Lagarde noted the central bank remains on course to cut rates in the near term, subject to any major shocks.

The EUR/USD pair extends its downside near 1.0620, bouncing off the Year-To-Date (YTD) low of 1.0600 during the early Asian session on Wednesday. However, the hawkish comments from the Federal Reserve (Fed) officials and the safe-haven flows might boost the US Dollar (USD) and cap the upside of EUR/USD in the near term. 

On Tuesday, Fed Chairman Jerome Powell said that the US economy's performance has been quite robust. Powell further stated that recent data indicates a lack of significant progress on inflation this year and it will take "longer than expected" to achieve the confidence that inflation will get down to the 2% target. A hawkish tilt by Fed’s Powell provides some support to the Greenback and drags the EUR/USD pair lower. 

About the data, Housing Starts in the US fell 14.7% in March to 1.32 million units from the previous reading of a 12.7% increase (revised from 10.7%). The US Building Permits dropped 4.3% from a rising 2.3% (revised from 1.9%) in February. Finally, Industrial Production rose 0.4% MoM in March, compared to the 0.4% increase recorded in February, in line with market expectation.

Across the pond, there is growing speculation that the European Central Bank (ECB) will start lowering interest rates in June due to a weak Eurozone economic outlook and cooling core inflationary pressures. ECB President Christine Lagarde said on Tuesday that the central bank remains on course to cut interest rates in the near term, subject to any major shocks. Lagarde added that the ECB will closely monitor oil prices amid the rising tensions in the Middle East. Later on Wednesday, the Eurozone Harmonized Index of Consumer Prices (HICP) for March will be due. Also, the ECB’s Cipollone, Schnabel and President Lagarde are set to speak. 

• EUR/USD drops to 1.0600 as the Fed is expected to pivot to rate cuts after the ECB.
• Eurozone’s weak economic outlook and cooling inflation fuel ECB rate cut bets.
• Fed policymakers emphasize keeping interest rates higher until they are sure about inflation returning sustainably to 2%.

The EUR/USD pair trades close to more than a five-month low near the round-level support of 1.0600 in the European session on Tuesday. The major currency pair is vulnerable to further downside as investors see the policy divergence between the Federal Reserve (Fed) and the European Central Bank (ECB) extending further.

Market expectations for the European Central Bank (ECB) to begin reducing interest rates from the June meeting have escalated. The weak Eurozone economic outlook and consecutive cooling core inflationary pressures for eight months have increased the likelihood of the ECB pivoting to rate cuts.

Last week, ECB President Christine Lagarde said if a fresh assessment increase policymakers' confidence that inflation is heading back to target, then it "would be appropriate" to cut interest rates, Reuters reported. ECB Lagarde delivered the statement in an interview post policy meeting in which the Main Refinancing Operations Rate was kept unchanged at 4.5%.

Meanwhile, traders have priced out expectations for Federal Reserve (Fed) rate cuts in the June and July policy meetings as core United States inflation remains stronger than expected in three months this year. This has strengthened the argument that the Fed should keep interest rates restrictive for a longer period.

Currently, investors expect that the Fed will start reducing interest rates from the September meeting. The Fed pivoting to rate cuts later than the ECB will stretch the policy divergence.

Going forward, speeches from various Fed policymakers will guide market expectations for Fed rate cuts. Fed policymakers are expected to support keeping interest rates higher until they are convinced that inflation will sustainably return to the desired rate of 2%.

• EUR/USD could test the support at the psychological level of 1.0600.
• The pair could extend losses to November’s low at 1.0516 as Technical analysis suggests a bearish confirmation.
• The area around the major level of 1.0650 and the 23.6% Fibo level of 1.0672 appears as the resistance zone.

EUR/USD continues its losing streak for the sixth successive session on Tuesday, hovering near 1.0620 during the Asian trading hours. The US Dollar's (USD) strength put pressure on the EUR/USD pair, possibly driven by increased US Treasury yields. Additionally, stronger-than-anticipated Retail Sales data from the US has raised expectations that the Federal Reserve (Fed) might prolong its stance on higher interest rates.

On the technical side, the analysis suggests a bearish sentiment for the EUR/USD pair as the 14-day Relative Strength Index (RSI) is positioned below the 50 mark. Additionally, the lagging indicator, Moving Average Convergence Divergence (MACD), lies below the centreline and shows a divergence below the signal line, which indicates weakness for the pair.

The EUR/USD pair could find immediate support around the psychological level of 1.0600. A break below this level could exert downward pressure on the pair to navigate the region around the major level of 1.0550, followed by November’s low at 1.0516.

On the upside, the major level 1.0650 appears as the key barrier, followed by the 23.6% Fibonacci retracement level of 1.0672. A breakthrough above the latter could lead the EUR/USD pair to explore the area around the psychological level of 1.0700 and the nine-day Exponential Moving Average (EMA) at 1.0715.

EUR/USD: Daily Chart

• EUR/USD extends its losing streak as the Fed is expected to maintain higher interest rates for an extended period.
• US Retail Sales (MoM) experienced a 0.7% increase in March, against the expected 0.3% and 0.9% prior.
• The dovish remarks from the ECB’s officials contribute to downward pressure on the Euro.

EUR/USD continues to lose ground for the sixth successive session, trading near 1.0610 during the Asian hours on Tuesday. The elevated US Dollar (USD) is exerting pressure on the EUR/USD pair, potentially influenced by the higher US Treasury yields. Furthermore, better-than-expected Retail Sales figures from the United States (US) have amplified expectations that the Federal Reserve (Fed) may maintain higher interest rates for an extended period.

US Dollar Index (DXY) extends its gains to near 106.20, with 2-year and 10-year yields on US Treasury bonds standing at 4.92% and 4.60%, respectively, at the time of writing. Escalating geopolitical tensions in the Middle East are prompting investors to flock towards the safe-haven US Dollar (USD) as a refuge.

US Retail Sales (MoM) increased by 0.7% in March, exceeding the market expectations of 0.3%. The previous reading was revised to 0.9% from 0.6% in February. Retail Sales Control Group rose by 1.1% against the previous increase of 0.3%.

Federal Reserve (Fed) Bank of San Francisco President Mary Daly recently stated that while there has been notable progress on inflation, there is still further ground to cover. She emphasized the importance of being confident that inflation is on a path toward the target before taking action. Daly also highlighted that the economy is experiencing solid growth, the labor market remains robust, and inflation is currently above the target level.

The Euro depreciates following dovish remarks from European Central Bank (ECB) officials on Monday. Gediminas Šimkus, a member of the ECB Governing Council, stated that there is a greater than 50% likelihood of witnessing more than three rate cuts this year, according to Reuters.

Additionally, ECB Chief Economist Philip Lane highlighted that there has been notably less progress concerning domestic inflation compared to broader inflation measures. Despite potential near-term fluctuations in the inflation outlook, the projected convergence of inflation to the target by 2025 remains supported.

• The Euro resumes its decline following strong US Retail Sales data
• The divergence between the ECB and the Fed's rate outlook is expected to weigh on the Euro.
• Geopolitical concerns are an additional support for the safe-haven USD.

The Euro’s mild upside bias seen during Monday’s European session has been hammered during US trading. The release of better-than-expected US Retail Sales has pushed US Treasury yields to fresh mid-term highs, bringing the US Dollar up with them.

Data released by the US Commerce Department revealed that retail consumption increased by 0.7% in March from 0.9% in February, beating expectations of a 0.3% rise. Excluding autos, total retail and food sales increased 1.1%, their best reading since January 2023.

Fed and ECB’s monetary divergence is weighing on the Euro

These figures highlight the strong US economic outlook and endorse the view that the Fed will have to keep rates at high levels for a longer time. This is underpinning demand for the USD.

The Eurozone context is the polar opposite, with inflation trending lower and the economy stalling. This has prompted the ECB to hint towards interest rate cuts, probably in June, putting the European Central Bank in the pole position for monetary easing and weighing on demand for the Euro.

Beyond that, investors’ concerns about an escalation of the Middle East conflict, as Israel weighs the options to retaliate from Iran’s missile attack is an additional support for the safe-haven US Dollar.

• EUR/USD is expected to witness more downside as the appeal for the US Dollar strengthens.
• Fed Daly said there is absolutely no urgency for the Fed to pivot to rate cuts.
• The ECB is expected to begin reducing interest rates from the June meeting.

The EUR/USD pair sees more downside below the immediate support of 1.0620 in Monday’s early American session. The major currency pair weakens as robust spending by United States households at retail stores in March has improved the US Dollar’s appeal.

The US Census Bureau reported that monthly Retail Sales grew strongly by 0.7% from expectations of 0.3%. In February, Retail Sales data rose by 0.9%, upwardly revised from 0.6%. The Retail Sales data is one of leading indicators of consumer spendings, which accounts for more than two-thirds of the US economy. Higher spending by households indicates a stubborn inflation outlook.

Upbeat Retail Sales data would allow Federal Reserve (Fed) policymakers to keep the monetary policy stance restrictive for a longer period.

Fed policymakers have been reiterating the need for maintaining interest rates higher until they get convinced that inflation will return to the desired rate of 2%. San Francisco Fed Bank President Mary Daly said on Friday that there is absolutely no urgency to start reducing interest rates. Daly added that there is still more work to do to make sure that inflation is on course to return to the desired rate of 2%.

In Monday’s early New York session, New York President John Williams said he is more optimistic about potential growth but see rate cuts starting later this year.

On the Eurozone front, European Central Bank (ECB) policymaker Peter Kazimir see possibility of rate cuts starting from the June meeting if inflation continues to fall. For the longer-term outlook, Kazmir said the ECB is not committed to any policy path beyond June, noting that they must maintain flexibility.

Last week, the ECB kept its Main Refinancing Operations Rate unchanged at 4.5% as expected. In a monetary policy conference, ECB President Christine Lagarde said if a fresh assessment increase policymakers' confidence that inflation is heading back to target, then it "would be appropriate" to cut interest rates, Reuters reported.

• EUR/USD rebounds from five-month lows despite hawkish tone surrounding the Fed’s monetary policy outlook.
• ECB member Gediminas Šimkus indicated that there is a probability of more than 50% for more than three rate cuts to occur in 2024.
• Traders may seek refuge in the safe-haven US Dollar due to escalated tensions in the Middle East.

EUR/USD rebounds from a five-month low of 1.0622 reached last Friday, hovering around 1.0660 during early European trading hours on Monday. The EUR/USD pair faced downward pressure as the European Central Bank (ECB) and the Federal Reserve (Fed) revealed diverging monetary policy outlooks.

Investors await the release of Eurozone Industrial Production data for March on Monday. Furthermore, the investors’ focus will shift to US Retail Sales figures due to be released later in the day.

The ECB signaled that if underlying inflation continues to decelerate as anticipated, there's a possibility of contemplating a reduction in policy rates in June. Meanwhile, the Federal Reserve (Fed) appears to be reassessing its monetary easing strategies in light of persistent US inflation and strong macroeconomic indicators. Thursday's data revealed that core producer inflation in the United States (US) surged year-over-year in March, surpassing expectations for the increase.

Traders adopt a cautious approach amidst heightened geopolitical tensions, which may prompt them to seek refuge in the safe-haven US Dollar (USD), potentially putting pressure on the EUR/USD pair. There's the possibility of Israel retaliating against Iran's attack. On Saturday, Iran launched explosive drones and missiles targeting military installations in Israel. Israel successfully intercepted most of the incoming projectiles, according to Reuters.

On Monday, Gediminas Šimkus, a member of the European Central Bank (ECB) Governing Council, stated that there is a greater than 50% likelihood of more than three rate cuts occurring this year, as per Reuters. Šimkus also mentioned that geopolitical events, such as an escalation of the Israel-Iran conflict, could potentially postpone the first rate cut to July from June.

• EUR/USD attempts to recover from five-month lows amid escalated Middle-East tension.
• Iran launched explosive drones and missiles at Israel late Saturday.
• The pair received downward pressure by diverging policy scenarios for the ECB and Fed.

EUR/USD edges up to near 1.0650 during the Asian session on Monday, recovering from a five-month low of 1.0622 reached last Friday. The US Dollar (USD) gained ground due to increased dollar-buying due to geopolitical turmoil, which contributed to downward pressure on the EUR/USD pair.

Over the weekend, Iran retaliated against a suspected Israeli attack on its consulate in Syria by launching explosive drones and missiles at Israel. Despite this escalation, the markets remained relatively calm, possibly due to Iran's advance notice of the attack, which helped mitigate the risk of further escalation.

According to reports from Reuters, officials from Turkey, Jordan, and Iraq stated that Iran had provided advanced notice days before the attack, allowing measures to prevent mass casualties and a worsening of the situation. However, a US official denied this claim. Additionally, US President Joe Biden told Israel that the United States would not participate in any retaliatory actions.

The EUR/USD pair faced downward pressure as the European Central Bank (ECB) and the Federal Reserve (Fed) revealed diverging monetary policy outlooks. The ECB indicated that if underlying inflation continues to slow as expected, there could be a consideration to lower policy rates in June.

In contrast, robust US inflation and strong macroeconomic indicators are prompting the Fed to reconsider its plans for monetary easing. The probability of interest rates remaining unchanged at the June meeting has increased to 63.5% according to the CME FedWatch Tool, up from 46.8% the previous week. Investors will closely monitor seasonally adjusted Eurozone Industrial Production data and US Retail Sales figures on Monday.

Boston Federal Reserve (Fed) President Susan Collins remarked on Friday that she anticipates 'around two' rate cuts for 2024, while still expecting inflation pressures to diminish later this year. She emphasized the uncertainty surrounding the timing of potential rate cuts and noted that while a rate hike is not currently part of the baseline scenario, it cannot be entirely ruled out.

• The Euro dives on a combination of a dovish ECB and a hawkish Fed
• The pair is on track to its weakest weekly performance in more than one year.
• Upside attempts are expected to be limited below 1.0725 and 1.0755.

The Euro has been falling like a stone over the last two days, crushed by the combination of a hawkish Federal Reserve and a dovish European Central Bank. The pair has lost nearly 2% in the last three days and is set to close its worst weekly performance in more than one year.

The ECB left rates unchanged at the 4% level in a contested decision, as some committee members were in favour of a rate cut. This, and the dovish tilt on the monetary statement has boosted expectations that the bank will start easing its monetary policy soon. Investors have marked June in their calendars.

This would put the ECB on the unprecedented position of shifting its monetary policy ahead of the Federal Reserve. The Fed is in a polar opposite, as the shock of the US inflation and the strong macroeconomic data is forcing the bank to dial down its monetary easing plans.

In this scenario, it is difficult to see any support for the Euro. The pair might see some correction from strongly oversold levels on intra-day charts, although upside attempts are expected to be limited. Supports are 1.0630 and 1.0525. Resistances lie at 1.0725 and 1.0755.

• EUR/USD slumps to 1.0660 as ECB rate cut bets for June strengthen.
• The US Dollar strengthens as the Fed is anticipated to start reducing interest rates later this year.
• Investors shift focus to the US Retail Sales data that will be published on Monday.

The EUR/USD pair extends its downside to near five-month low around 1.0660 in Friday’s European session. The major currency pair falls sharply on firm speculation that the European Central bank (ECB) will begin reducing interest rates from the June meeting.

The ECB kept its key borrowing rates unchanged on Thursday at 4.5% to maintain downward pressure on the consumer price inflation. In the monetary policy statement, the ECB said that restrictive financial conditions and interest rate hikes yet made are weighing on the overall demand and pushing downward pressure on inflation.

Also, the ECB said that it will remain data-dependent to determine how long interest rates are needed to remain restrictive. The central bank refrained from committing to any particular rate path.

The speculation for ECB pivoting to rate cuts from June strengthen after ECB President Christine Lagarde said that if a fresh assessment increased policymakers' confidence that inflation is heading back to target, then it "would be appropriate" to cut interest rates, Reuters reported.

Meanwhile, the market sentiment is downbeat as traders pare big bets leaning to Federal Reserve (Fed) beginning to reduce interest rates from the June meeting. S&P 500 futures have posted losses in the European session. 10-year US Treasury yields falls slightly after refreshing more than four-month high near 4.60%. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, jumps to near five-month high around 106.00.

Going forward, investors will shift focus to the monthly Retail Sales data, which will be published on Monday. The Retail Sales data is a leading indicator of consumer spending. Higher Retail Sales suggests robust consumer spending, which leads to a stubborn inflation outlook.

• EUR/USD remains on the defensive around 1.0728 in Friday’s early Asian session. 
• US PPI figure rose 0.2% MoM in March, compared to the 0.3% estimate; yearly PPI climbed 2.1%, the biggest gain since April 2023. 
• The ECB held its key interest rates steady at 4.0% for a fifth straight meeting on Thursday, as widely expected. 

The EUR/USD pair trades with a negative bias near 1.0728 on Friday during the early Asian session. The modest recovery in the US Dollar (USD) amid the rising speculation of a Fed rate cut in September weighs on the major pair. On Thursday, the European Central Bank (ECB) held interest rates steady at a record high as expected and opened the door to a rate cut in June. Investors await the German March inflation data and the preliminary US Michigan Consumer Sentiment, due on Friday.

A measure of US inflation at the wholesale level came in softer-than-expected in March, boosting hopes for rate cuts from the Federal Reserve (Fed) this year. The US Producer Price Index (PPI) rose 0.2% MoM in March, compared to the 0.3% estimate. Annually, the PPI jumped 2.1% YoY in the same period, the biggest gain since April 2023. Additionally, the Core PPI, excluding food and energy, increased 2.4% YoY, beating market expectations, according to the Bureau of Labor Statistics on Thursday.

The report had little impact on the market. Investors are now pricing in only two rate cuts this year, which will most likely begin in September, according to CME FedWatch Tool. The FOMC minutes released on Wednesday showed that participants noted their uncertainty about the elevated high inflation and recent data had not increased their confidence that inflation was moving sustainably down to 2%," according to the minutes.

Across the pond, the ECB held its key interest rates steady at 4.0% for a fifth straight meeting on Thursday. The central bank also hinted about an upcoming rate cut, despite uncertainty over the Fed's next moves. The markets have priced in a 25 basis points (bps) rate cut from the ECB in June, according to LSEG data. The growing speculation that the ECB would cut its rate before the US Fed exerted some selling pressure on the Euro (EUR) and acts as a tailwind for the EUR/USD pair. 

• EUR/USD prints a fresh monthly low at 1.0720 after the ECB holds key rates steady.
• ECB Lagarde didn’t provide cues about when the central bank could pivot to rate cuts.
• The US Dollar strengthens as investors don’t see the Fed reducing rates soon.

The EUR/USD pair falls further to 1.0720 in Thursday’s early New York session after the European Central Bank (ECB) decided to hold its Main Refinancing Operations Rate steady at 4.5%. The ECB was widely anticipated to keep its borrowing rates higher to maintain downward pressure on the consumer price inflation.

In the monetary policy statement, the ECB commented that restrictive financial conditions and interest rate hikes yet made are weighing on overall demand and pushing downward pressure on inflation. The ECB denied committing to any particular rate path and said it would remain data-dependent to determine how long interest rates need to remain restrictive.

In the press conference, ECB President Christine Lagarde warned that the economy is weak and risks to growth have tilted to the downside. Lagarde added that labour market conditions are continuously easing, and demand for the manufacturing sector is weak. She is confident that inflation will decline to target next year, which is 2%. ECB Lagarde didn’t comment on when the central bank could start reducing interest rates.

The strong US Dollar also drives the weakness in the major currency pair. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, hovers near more than a four-month high of around 105.20. The appeal for the US Dollar strengthens as traders push back market expectations to Federal Reserve (Fed) rate cuts. The Fed is expected to keep interest rates in the range of 5.25%-5.50% at least till the September meeting, as the United States consumer price inflation for March turned out stronger than expected.

Meanwhile, the US Bureau of Labor Statistics (BLS) has reported hot annual core Producer Price Index (PPI) data for March. US core PPI grew strongly by 2.4% from estimates of 2.3% and the prior reading of 2.0%.