- Investors eagerly await the FOMC policy meeting on Wednesday.
- Friday’s US PCE price index revealed high housing and utility prices.
- ECB policymakers remain confident that inflation is on a clear path to the 2% target.
The EUR/USD outlook is bearish as the dollar strengthens in anticipation of the upcoming FOMC policy meeting. Meanwhile, the euro faces pressure as ECB policymakers express confidence in tackling inflation within the Eurozone.
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The Eurozone CPI records a 2.7% rise against the expected 2.6%. The event has given a slight respite to the Euro, with the major focus on how the US dollar reacts to events like FOMC and NFP this week.
Investors eagerly await the FOMC policy meeting on Wednesday for more clues on the outlook for Fed rate cuts. Notably, markets expect the central bank to hold rates where they are currently. Moreover, policymakers might be more hawkish after recent data revealed continued economic strength and persistent inflation. Friday’s PCE price index revealed high housing and utility prices after a series of better-than-expected reports. Therefore, the Fed might continue holding higher interest rates for longer.
Meanwhile, policymakers in the Eurozone remain confident that inflation is on a clear path to the 2% target. ECB’s Klaas Knot said inflation was steadily declining, giving him confidence that the central bank will start cutting interest rates in June. Moreover, he noted that geopolitical tensions only posed a small risk to the progress in lowering inflation. However, he remained cautious about cutting rates after the June meeting.
Policymakers will wait to see the impacts of the recent increase in oil prices. Additionally, the Fed’s ever-changing policy outlook will shape what the ECB does after June. Too much divergence with the Fed could lead to a weaker currency and higher import prices. This, in turn, could increase inflation in the Eurozone.
EUR/USD key events today
- US employment cost index
- US CB consumer confidence
EUR/USD technical outlook: Bears challenge uptrend at the 30-SMA
On the technical side, the EUR/USD price is on the verge of breaking below the 30-SMA. At the same time, the RSI trades below 50, showing increased bearish momentum. Bears are challenging the uptrend, which paused at the 0.5 Fib retracement level.
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The previous bearish move was impulsive and stopped at the 1.0601 key level. At this point, bulls took over, pushing the price above the 30-SMA. However, the uptrend was shallow, with the price staying close to the SMA. Therefore, it was a corrective move. If bears break below the SMA, the price might make another impulsive move to retest 1.0601.
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Saqib Iqbal
