- EUR/USD rises to 1.0790 as the US Dollar edges down due to weak US data.
- ECB Stournaras sees the central bank reducing interest rates three times this year.
- Weak US labor market data and poor ISM Services PMI darkens the US economic outlook.
In Monday’s early New York trading session, the EUR/USD pair climbed to 1.0790. This rise comes as the US Dollar faces downward pressure due to strong expectations that the Federal Reserve (Fed) will begin lowering interest rates starting from its September meeting. The dynamics of the EUR/USD pair are primarily influenced by the US Dollar this week, given the lack of significant economic data from the Eurozone.
The European Central Bank (ECB) is expected to begin normalizing its policy in its upcoming June meeting. This anticipation fuels speculation about the ECB’s interest rate strategies for the latter half of the year, which is a key driver of the Euro’s performance.
ECB policymakers show a divide regarding the extension of the interest rate cut cycle beyond the June meeting. Some members suggest that continuing to cut rates from the July meeting could reignite inflationary pressures. In an interview with a Greek media outlet, ECB policymaker and Bank of Greece Governor Yannis Stournaras mentioned he anticipates three rate cuts this year, citing a stronger-than-expected economic recovery in the Eurozone during the first quarter as a supportive factor for fewer cuts than initially expected.
Daily Market Movers: EUR/USD Gains on US Dollar Weakness
The strength in the EUR/USD is linked to the softening US Dollar, which reacted to recent labor market data and the ISM Services Purchasing Managers Index (PMI) for April. The US Nonfarm Payrolls (NFP) report indicated weaker labor additions than expected and a softening in wage growth. These factors contributed to a drop in the US Dollar Index (DXY) to a near four-week low. However, the ISM Services PMI data showed increased prices paid for inputs, hinting at persistent inflationary pressures despite a drop in the overall index to the lowest level since December 2022.
This combination of easing labor conditions and a disappointing ISM Services PMI has fueled expectations that the Fed might cut interest rates in September. The CME FedWatch tool indicates a 70% probability of lower rates by then. On the contrary, Fed Governor Michelle Bowman expressed a readiness to increase rates if inflation reduction stalls, as reported by Reuters.
Technical Analysis: EUR/USD Aiming for 1.0800
As of Monday, EUR/USD is advancing for the fourth consecutive session, though it remains within the trading range established on Friday. The pair’s near-term outlook is positive, trading above the 20-day Exponential Moving Average (EMA) at around 1.0730.
The pair is also exhibiting a Symmetrical Triangle pattern on the daily chart, which suggests volatility contraction. This pattern is formed by an upward-sloping line from the October 3 low at 1.0448 and a downward-sloping line from the December 28 high at about 1.1140.
The 14-period Relative Strength Index (RSI) is hovering in the 40.00-60.00 range, indicating a level of indecisiveness among traders about the pair’s future direction.