EUR/USD Falls to 1.0834 on Fed’s Inflation Stance

EUR/USD Falls to 1.0834 on Fed’s Inflation Stance

Key Points

  • EUR/USD trading below the 200-hour EMA at 1.0834, with bearish momentum and key levels at 1.0820 and 1.0802.
  • The FOMC maintains a firm stance on inflation, awaiting clear evidence of easing to the 2% target.
  • Investors were disappointed, leading to decreased risk appetite and a lower EUR/USD pair.

On Wednesday, the Federal Reserve released its latest Meeting Minutes, revealing the Federal Open Market Committee’s (FOMC) unwavering stance on inflation. The Committee’s decision to wait for concrete evidence of a 2% inflation target caused ripples in financial markets. Investors, hoping for dovish signals from the Fed, ended up disappointed. The news reduced risk appetite, significantly impacting the EUR/USD pair, which dropped lower in response.

May PMI Data: EU Manufacturing at 46.2, Services at 53.5

The following day, attention shifted to the Pan-European PMI data. Analysts expected a slight recovery, with EU Manufacturing PMI rising to 46.2 in May from 45.7 in April. Similarly, projections indicated that the EU Services PMI would marginally increase to 53.5 from 53.3. These figures hinted at a stabilising European economy, providing some relief to market participants.

Later on Thursday, the US market session is scheduled to release the US PMI figures, with expectations set at 50.0 for the Manufacturing PMI and 51.3 for the Services PMI. These data points were crucial for gauging the health of the US economy and its impact on global financial markets.

Rate Cut Hopes Fade: September Probability at 60%

The hawkish tone from the Federal Reserve dampened hopes for a near-term rate cut, significantly affecting market sentiment. According to the CME’s FedWatch Tool, the probability of a quarter-point rate cut in September eased to 60%. This expectation shift underscores the Fed’s focus on controlling inflation rather than providing immediate economic stimulus. Investors reassessed their positions, especially in forex, where the EUR/USD pair faced renewed pressure due to the revised outlook.

EUR/USD Bearish: Below 200-hour EMA at 1.0834

Technically, the EUR/USD pair is trading below the 200-hour Exponential Moving Average (EMA) at 1.0834. It is also struggling to stay above the key level of 1.0820. The pair has experienced a failed bull run at the 1.0900 handle and has closed in the red for three of the last four trading days. This bearish pullback suggests a challenging near-term outlook, although the longer-term trend remains up from the last major swing low at 1.0600 in mid-April. Traders closely watch the 200-hour EMA at 1.0834, the 1.0820 support level, and the 200-day EMA at 1.0802 for further clues.