Published on Jun 16, 2023

Daily Analysis For EUR/USD 16-06-2023

EUR/USD Analysis

Key Points: -

· EUR/USD is experiencing fluctuations near its highest levels since early May, following a significant surge that marked its largest increase in 4.5 months.

· The European Central Bank (ECB) has announced a 25 basis point rate hike and indicated its intention to adopt a more hawkish stance compared to the US Federal Reserve (Fed).

· Euro traders are seeking additional information from the economic forecasts and comments made by ECB President Lagarde. Mixed economic data from the United States further emphasizes the need for more clues to guide Euro trading.

Today's Scenario: -

EUR/USD is currently hovering around the 1.0950 level, as bullish momentum takes a pause following a strong rally, the most significant since early February, during the sluggish Asian session on Friday. This suggests that the market is in need of further clues to support the hawkish bias surrounding the European Central Bank (ECB) and to confirm doubts regarding the Federal Reserve's (Fed) potential rate hike in July.

The ECB's decision to raise interest rates by 25 basis points aligns with market expectations. Moreover, ECB President Christine Lagarde has expressed support for a rate hike in July and ruled out rate cuts, emphasizing the Euro's victory over the Fed's recent decision to pause its hawkish stance.

However, there are some negative factors to consider. The ECB's latest growth projections for 2023 and 2024 indicate a softer economic outlook compared to previous estimates. Lagarde has also highlighted the unpredictability of both growth and inflation.

On the other hand, mixed economic data from the United States and the Fed's decision to maintain its current stance after raising rates in the previous 10 meetings have put pressure on the US Dollar. As a result, the US Dollar Index (DXY) has fallen to its lowest level in over a month, flirting with 102.10.

In terms of data, US Retail Sales for May showed growth of 0.3%, surpassing expectations of -0.1% and the previous reading of 0.4%. Core Retail Sales, excluding autos, met market forecasts at 0.1% for the same month, compared to the previous reading of 0.4%. Additionally, the NY Fed Empire State Manufacturing Index for June jumped to 6.6, exceeding expectations of -15.1 and the previous reading of -31.8. However, the Philadelphia Fed Manufacturing Index dropped to -13.7 in June from -10.4, falling short of market forecasts of -14. US Industrial Production for May contracted by -0.2% against the estimated growth of 0.1% and the previous reading of 0.5%. Furthermore, Initial Jobless Claims for the week ending June 9 came in at 262K, higher than the expected 249K and following an upward revision.

Following the data release, the CME's FedWatch Tool indicates that market players are placing bets of nearly 67% on a 25 basis point rate hike by the Fed in July. This reflects a lack of conviction among traders regarding the Fed's clear signals for a hawkish move.

Against this backdrop, Wall Street benchmarks rallied by more than 1.0% each, while US 10-year Treasury bond yields declined to 3.72%. The US Dollar Index (DXY) experienced its largest drop in three months, reaching its lowest level since May 12, at 102.15.

Looking ahead, the final readings of Eurozone inflation data for May, based on the Harmonized Index of Consumer Prices (HICP), will be released prior to the preliminary readings of the Michigan Consumer Sentiment Index (CSI) for June and five-year inflation expectations. It will be important to closely monitor bond market movements and central bank clues for clearer direction in the immediate EUR/USD movements.

Diagram of EUR/USD: -

Economic Events: -

Date Event Impact Currency

01:30 (United States) Foreign Bond Investment Low USD

01:30 (United States) Net Long-term TIC Flows Medium USD

01:30 (United States) Overall Net Capital Flows Low USD

04:00 (New Zealand) Business NZ PMI Medium NZD

08:30 (Japan) BoJ Interest Rate Decision High JPY

12:30 (Austria) Inflation Rate MoM Low EUR

12:30 (Austria) Inflation Rate YoY Low EUR

12:30 (Austria) Harmonised Inflation Rate YoY Low EUR

12:30 (Austria) Harmonised Inflation Rate MoM Low EUR

12:30 (Austria) CPI High EUR

12:30 (Slovakia) Harmonised Inflation Rate YoY Low EUR

12:30 (Slovakia) Harmonised Inflation Rate MoM Low EUR

12:30 (United States) Fed Bullard Speech Medium USD

13:30 (European Union) ECOFIN Meeting Medium EUR

13:30 (Italy) Inflation Rate YoY Medium EUR

13:30 (Italy) Harmonised Inflation Rate MoM Low EUR

13:30 (Italy) Harmonised Inflation Rate YoY Low EUR

13:30 (Italy) Inflation Rate MoM Low EUR

13:30 (Italy) CPI High EUR

14:30 (Euro Area) Inflation Rate MoM Low EUR

14:30 (Euro Area) Core Inflation Rate YoY Low EUR

14:30 (Euro Area) Inflation Rate YoY Medium EUR

14:30 (Euro Area) Labour Cost Index YoY Low EUR

14:30 (Euro Area) Wage Growth YoY Low EUR

14:30 (Euro Area) CPI High EUR

14:30 (Malta) Inflation Rate YoY Low EUR

15:30 (Portugal) PPI YoY Low EUR

15:30 (Portugal) PPI MoM Low EUR

17:15 (United States) Fed Waller Speech Medium USD

18:00 (Canada) Foreign Securities Purchases Low CAD

18:00 (Canada) Foreign Securities Purchases by Canadians Low CAD

18:00 (Canada) Wholesale Sales MoM Low CAD

19:30 (United States) Michigan Consumer Sentiment High USD

19:30 (United States) Michigan Inflation Expectations Low USD

19:30 (United States) Michigan Current Conditions Low USD

19:30 (United States) Michigan 5 Year Inflation Expectations Low USD

19:30 (United States) Michigan Consumer Expectations Low USD

22:30 (United States) Baker Hughes Oil Rig Count Low USD

22:30 (United States) Baker Hughes Total Rig Count Low USD

Buy Scenario: -

From a technical perspective, there is a horizontal resistance zone between 1.0965 and 1.0940, formed by multiple levels since April 24, that is currently limiting immediate upside movements for EUR/USD. The overbought condition of the Relative Strength Index (RSI) also adds to the resistance.

If the pair manages to surpass the 1.0965 hurdle, the next challenge for EUR/USD bulls will be the 78.6% Fibonacci retracement level of the previous monthly decline, around the psychological level of 1.1000. Further upward momentum could lead to a test of the yearly high near 1.1100, which was reached in April, till we do not advise to buy EUR/USD currency pair.

Sell Scenario: -

On the downside, a break below the immediate support level at 1.0940 could push the pair towards the 61.8% Fibonacci retracement level near 1.0920. If selling pressure persists, the 50% Fibonacci retracement level around 1.0865 might attract Euro bears.

It is important to note that unless there is a clear break below the support confluence at 1.0825-20, which includes the 200-day Simple Moving Average (SMA) and an ascending trend line from June 07, EUR/USD buyers should maintain a hopeful outlook. Till then we do not advise selling EUR/USD.