**EUR/USD Rises Ahead of Key US CPI Report**
*By XTB Market Analysis Team*
The EUR/USD currency pair gained 0.15% ahead of the highly anticipated release of US Consumer Price Index (CPI) data. This development reflects growing anticipation in the markets as traders look for fresh clues on the US Federal Reserve’s interest rate path. The modest climb follows recent volatility and mixed economic signals across both the US and eurozone economies. Let’s explore what’s driving this price movement and what market participants should watch next.
**Recent Performance of EUR/USD**
– EUR/USD traded higher in the session, climbing about 0.15% to hover near the 1.0760 level.
– The upward move follows a relatively restrained performance for the currency pair in the previous sessions.
– This increase comes amid cautious optimism from investors speculating that US inflation might be cooling and the Fed could hold off on further rate hikes.
**Market Context Ahead of US CPI**
The US Consumer Price Index is one of the most closely watched economic indicators for gauging inflation trends. As the Federal Reserve remains data-dependent, CPI results significantly influence market expectations for monetary policy.
– The upcoming CPI release for May is expected to show a year-on-year decline in headline inflation.
– Analysts forecast annual inflation to slow to 3.4%, down from 3.6% in April.
– Core CPI, which excludes volatile food and energy prices, is expected to dip slightly from previous levels, holding around 3.5%.
Expectations of cooling inflation create downward pressure on the US dollar, benefiting the euro in the short term. If the data confirms that inflation is moderating, it could strengthen the case for the Federal Reserve to pause or even consider rate cuts later in 2024.
**US Federal Reserve Policy in Focus**
The June policy meeting of the Federal Open Market Committee (FOMC) also takes center stage this week. The recent positive shift in investor sentiment reflects changing expectations on how the Fed will act.
– Fed officials have generally taken a cautious tone, indicating the need for more evidence before considering a pivot to lower interest rates.
– Recent speeches from Fed Chair Jerome Powell and Vice Chair Philip Jefferson emphasized patience and suggested that policymakers must be confident that inflation is moving sustainably toward the 2% target.
– Market expectations are showing an increasing belief that rates will remain unchanged at the June meeting, but future projections await clarity from upcoming inflation and labor market data.
Currently, the federal funds rate stands at a range of 5.25% to 5.50%, levels not seen in more than two decades.
**Eurozone Economic Landscape**
The euro has staged a modest comeback in recent sessions thanks to improving data from the eurozone and diminishing fears of a deep economic slowdown.
– The European Central Bank (ECB) recently delivered a rate cut, as expected, marking its first monetary policy easing in five years.
– While the ECB began its rate-cutting cycle, officials emphasized that the path ahead is not set in stone and is dependent on upcoming economic indicators.
– Eurozone inflation has shown signs of stabilizing but remains slightly above the ECB’s 2% target, providing room for gradual policy adjustments.
The divergence in monetary policy between the US and the eurozone creates competing forces on the EUR/USD currency pair. While the ECB has started its easing phase, the Fed’s decision-making remains tightly tied to incoming economic data.
**Technical Outlook for EUR/USD**
The EUR/USD pair remains within a medium-term downtrend, though recent price action suggests a potential stabilization, at least temporarily.
Key technical levels to observe:
– Immediate resistance sits around the 1.0790-1.0800 region. A break above this level may open the door for a retest of the 1.0850 area.
– The 200-day simple moving average, currently near 1.0810, serves as a notable technical barrier.
– On the support side, the 1
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