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The Euro/USD currency pair gained as the US dollar weakened across the board ahead of the Federal Open Market Committee (FOMC) monetary policy meeting announcement due on Wednesday morning. The pair posted intraday gains near 1.1025 levels at the time of writing. Despite mixed Eurozone inflation data and ECB updates, the Euro currency pair managed to recover from a short-term support line. This was due to disappointing US economic data and doubts that the Federal Reserve’s (Fed) interest rate hike was the cause of the recent turmoil in the banking sector. The latest Bank Lending Survey conducted by the ECB showed that 38% of Eurozone banks reported a decline in corporate demand for credit in the first quarter of this year. This suggests a negative impact of the interest rate hike on credit conditions in the bloc. Meanwhile, Heather Boushey, a White House economist and member of the Council of Economic Advisers, told Reuters that the Federal Reserve’s (Fed) interest rate hike was expected to reduce inflation, but it had a negative effect on the banking sector. Boushey asked, “Why are we raising rates?”
In April, the first reading of the eurozone Harmonized Index of Consumer Prices (HICP) showed a rise to 7.0% YoY, beating market estimates of 6.9% and the previous reading. However, the European Central Bank’s (ECB) preferred inflation gauge, Core HICP, actually fell to 5.6% during the same period, below analysts’ estimates of 5.7% and the previous reading. Meanwhile, in the US, Factory Orders for March increased by 0.9%, beating market estimates of 0.8% and a revised previous reading of -1.1% decline. However, US JOLTS Job Openings for the month fell to 9.59 million from the previous reading of 9.974 million and below market estimates of 9.775 million. Fresh selling of PacWest Bancorp and Western Alliance Bancorp has fueled concerns about the overall banking environment and put a floor under the US Dollar, especially given the hawkish bets from the Federal Reserve (Fed). Moreover, it also weighed on market sentiment and challenged EUR/USD’s upside, while US policymakers are also struggling to avoid a debt ceiling deadline that will occur in June, compared to previous expectations that showed an expiration in July. According to Reuters, on Tuesday, top Republicans in the US Senate called on President Joe Biden to accept their party’s debt ceiling package or make a counter-offer, while a leading Democrat said the Senate may try to advance a “clean” debt ceiling increase next week.
In this situation, Wall Street closed in the red and US Treasury yields fell sharply. However, the market was limited by holidays in China and Japan. S&P 500 Futures pared recent losses around 4,142. EUR/USD traders should pay attention to the catalyst risks and the US ADP Employment Change for April, as well as the ISM Services PMI for a clear direction. The Fed’s monetary policy announcement should be watched carefully as the US central bank’s 0.25% rate hike is already underway and talks of a policy pivot are on the cards, which could boost the Euro if proven true. In the technical analysis by FXSTREET, it is mentioned that the clear break of the 21-DMA support level around 1.0970 at the time of writing, followed by an upside break of the previous one-week-old resistance line that is now near the support level around 1.0990. This makes EUR/USD buyers optimistic. Nevertheless, buyers of the Euro pair will need confirmation of the previous one-month-old support level, at the latest near 1.1025, to maintain control over the situation.
Also Read :
German CPI Rises 7.4 Percent, Euro Moves Higher
Euro Today's Value Increases Buying Offers Around 1.1000
Warning!
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