EUR/USD is on the hunt for a new direction | 27 May 2024

EURUSD:

The EUR/USD is trading at around 1.0850 in the early Asian session on Monday. A stronger-than-expected preliminary Eurozone Purchasing Managers' Index (PMI) for May is providing some support for the Euro (EUR). However, the likelihood that the European Central Bank (ECB) will cut interest rates in the coming months could limit the major pair's upside.

The release of stronger US economic data and more assertive comments from US Federal Reserve (Fed) officials could prompt speculation about a delay in the easing cycle this year. According to CME's FedWatch tool, investors now estimate the probability of a Fed rate cut in September at 53%, up from 64% a week ago. Investors are awaiting preliminary annualised US gross domestic product (GDP) data for the first quarter (Q1), due out on Thursday. The latest estimates indicate that GDP grew by 1.5% in the first quarter, up from 1.6% previously. This stronger reading is likely to have a positive impact on the US dollar in the near term.

On Friday, US durable goods orders increased by 0.7% in April, up from a downwardly revised 0.8% in March. This was stronger than expectations of -0.8%. Meanwhile, the University of Michigan's consumer sentiment index increased to 69.1 in May from 67.4 in April, exceeding the 67.5 forecast. The University of Michigan's five-year inflation expectations fell to 3% from 3.1%.

On Sunday, ECB policymaker Piero Cipollone stated that an interest rate cut in June was warranted, given the latest data. Meanwhile, ECB President Christine Lagarde expressed confidence that Eurozone inflation was under control and that an interest rate cut was a possibility next month. A reduction in the ECB's borrowing costs in June was widely anticipated, which could exert pressure on the euro against its counterparts.

Trade recommendation: We follow the level of 1.0850, if it rebounds, we take Buy positions. If we consolidate below, we take Sell positions.

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