EURUSD: still no cut

6월 17일

The major event during the previous week was the FOMC meeting, where its members were deciding on the course of the US reference interest rates. The rates were left unchanged, which was widely expected by market participants, but what the market could not anticipate is that the Fed cut their interest rate projections till the end of this year, and from initially expected three rate cuts, the Fed is now projecting only one later this year. This information was crucial for the markets to start their re-positioning, which implied extreme volatility in prices of equities, Treasury bonds, and gold on Wednesday, while the US Dollar also had its strong shifts. Before the FOMC meeting, the latest US inflation data was published. Inflation rate in May was standing at the level of 3.3% y/y, which was lower from the market forecast of 3.4%. Core inflation rate also slowed down to the level of 3.4% y/y, again lower from market forecast of 3.5%. As for other US macro data released during the week, Producers Price Index was down by -0.2% m/m in May, lower from forecasted +0.1%. Initial Jobless Claims in June were standing at 242K, missing market estimate of 225K. Michigan Consumer Sentiment preliminary for June was 65.6, much lower from the market estimate at 72.

Inflation rate in Germany final for May, was standing at 2.4% y/y, without a change from a previous post. There have not been further significant macro data published for the Euro Zone and Germany, as its strongest economy.

Fed-induced volatility has been dominant on the eurusd market during the previous week. The currency pair had its own strong swifts toward both sides, as the market initially was not sure which side to trade. In this sense, the range in which eurusd was traded was wide between levels of 1.085 down to 1.067. Still, the currency pair is ending the week at the level of 1.07. The RSI is on its clear path toward the oversold side, however, it will need some more time until the clear oversold momentum is reached, considering that it is currently moving around the level of 38. Moving averages of 50 and 200 days continue to move as two parallel lines still, without an indication of a potential cross.

Two weeks ago charts were clearly indicating that the next target of eurusd might be long term support at 1.067. Although it should have happened within a longer period of time, still, the market decided to test this level during the previous week. However, it was clear that this support will not be reached until 1.07 is clearly tested, so it could be expected that the market will spend a week ahead testing these levels. At this moment, there is an extremely low probability that 1.08 could be reached for one more time. Charts are indicating that the week ahead might be a bearish one for the currency pair.

Important news to watch during the week ahead are:
Euro: Core Inflation Rate final for May in Euro Zone, ZEW Economic Sentiment Index for June for the Euro Zone and Germany, HCOB Manufacturing PMI flash for June for Germany,
USD: Retail Sales in May, Building Permits preliminary for May