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Euro Holding Firm as US Dollar Undermined by Fed Policy Risks. Where to for EUR/USD?

Euro Holding Firm as US Dollar Undermined by Fed Policy Risks. Where to for EUR/USD?

Daniel McCarthy, Strategist

Euro, EUR/USD, US Dollar, Fed, Crude Oil- Talking Points

  • The Euro has benefitted from the ECB and the Fed pivoting on rates
  • APAC equities are higher, buoyed by Wall Street and China easing restrictions
  • If German inflation numbers are high, will it boost EUR/USD?

The Euro has been finding support as the ECB have been hinting toward July rates lift-off at the same time that the odds of a September hike at the Fed has been slipping.

Respected economist and former PIMCO CEO Mohamed El-Erian said over the weekend that he sees a possible September pause in Fed hikes but highlighted the risks of such a move.

A slower hiking cycle could see uncomfortably high inflation remain into 2023. The other path of more aggressive hikes risks a recession.

Speaking on Bloomberg, El-Elrian essentially made it clear that a soft landing is going to be difficult for the Fed to achieve. "The Fed is going to have to decide between two policy mistakes," he said.

Meanwhile, German inflation data today could add to speculation about the ECB moving on rates. The market is anticipating 7.6% year-on-year in May, up from 7.4% previously.

EUR/USD has held firmer ground not far from Friday’s high of 1.0765 through a lacklustre start to the week in the Asian session for currencies. The slightly weaker USD has helped gold move toward US4 1,860 an ounce.

Crude oil is nudging toward 2-month highs on optimism that China may ease Covid-19 restrictions. The WTI futures contract is near US$ 116 bbl and the Brent contract is above US$ 120 bbl.

The buoyant mood has seen most APAC equity indices gain either side of 2% and futures markets are pointing toward Wall Street continuing on from Friday’s gains.

Looking ahead, along with German CPI, EU leaders meet in Brussels and the US have their Memorial Day holiday

The full economic calendar can be viewed here.

EUR/USD Technical Analysis

EUR/USD has continued to rally off the 1.0350 low seen 2-weeks ago, which was just shy of the January 2017 nadir of 1.0340.

These levels may provide support, as well as the break points near 1.0638 and 1.0494.

More recently, two Golden Crossescan be observed when the 10-day simple moving average (SMA)crossed above the 21-day SMA and the 34-day SMA.

The latter is occurring today and could suggest that bullish momentum is evolving.

Resistance may remain at the nearby break point of 1.0760 or a descending trend line, currently at 1.0810.

EUR/USD CHART

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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