EUR/USD May 30 – Trading in range as low inflation

EUR/USD  is trading in a narrow range above 1.36 as the week draws to a close. The tension is mounting towards the ECB decision in less than a week, and inflation figures play a major role. The data from Spain and Italy certainly looks weak and raises the expectations for ECB action. Some interesting figures also await us in the US, with the Chicago PMI standing out. Where will the pair close the week?

Here is a quick update on what’s moving the pair.

• Previous sessions: EUR/USD hugged the 1.36 line from both sides, not going too far..

Current range: 1.3560 to 1.3650. Further levels in both directions:

• Below: 1.3560, 1.3515 and 1.3475 and 1.34
• Above: 1.3650, 1.37, 1.3740, 1.3785, 1.3830, 1.3865, 1.3905, 1.3964 and  1.40
• On the upside, 1.3650 is the next resistance line. The  round number of 1.37 follows.  
• 1.3560  continues to  provide  strong support.  

EUR/USD Fundamentals

• 6:00  German Retail Sales. Exp. +0.4%. Actual -0.9%. However, a positive revision for previous data balanced the picture.
• 7:00 Spanish HICP y/y. Exp. +0.2%, actual +0.2%.
• 9:00 Italian CPI, y/y. Exp. +0.4%, actual +0.6%.
• 12:30 US  Personal Spending. Exp. +0.2%.
• 12:30 US Core PCE Price Index. Exp. +0.2%.
• 12:30 US Personal Income. Exp. +0.3%.
• 13:45 US Chicago PMI. Exp. 60.8 points.
• 13:55 US revised consumer sentiment. Exp. 82.9 points.

*All times are GMT

For more events and lines, see the  Euro to dollar  forecast.

EUR/USD Sentiment

• Euro-zone inflation points to action: Both Italian and Spanish inflation numbers are weak and they could signal what we’ll see on Monday from Germany and the all important euro-zone release for Tuesday. While the ECB targets the medium term and the decision officially depends on inflation expectations and not on current data, the rate cut in November was certainly triggered by the drop in inflation in the previous month.
• Draghi and co. admit deflation fears, prepare markets:   ECB president  Mario Draghi denied deflation concerns  again and and again, but changed his mind in the ECB conference this week.  Noting that  deflation was a serious threat  and made it clear once again after the shock comment earlier in the month, that ECB action is imminent. A cut in interest rates seems obvious and also  asset purchases,  liquidity injections and heavy hints about further actions are on the cards. Any one of these moves would likely have a strong impact on EUR/USD, which has retracted somewhat since testing the 1.40 level earlier in May. Is the ECB decision already priced in? Not so fast. Join a free webinar towards the event.
• US GDP contracts: The first revision of US GDP in Q1 showed a squeeze of 1% (annualized). This was worse than expected and blamed on the weather and on an inventory squeeze once again.  Indicators for Q2 already look much better, with jobless claims dropping to 300K. Next week’s NFP will be closely watched.

Further reading:  EUR Precariously Balanced Into End of Week