03 June 2024, EUR/USD
An event to look out for today:
17:00 GMT+3. USD - ISM manufacturing index
EURUSD:
EUR/USD continues to rise around 1.0850 on Monday during the early Asian session. Lower PCE inflation data in the US and better-than-expected HICP inflation data in the eurozone provide some support for the major pair. The ISM US manufacturing PMI for May will be in focus on Monday ahead of the European Central Bank's interest rate decision on Wednesday.
On Friday, the Commerce Department's Bureau of Economic Analysis reported that US inflation, as measured by the Personal Consumption Expenditures (PCE) price index, rose 0.3% month-on-month in April, as expected. On a year-over-year basis, PCE was 2.7% y/y in April, in line with March's increase and in line with forecasts.
The PCE core price index, which excludes volatile food and energy prices, rose 2.8% y/y, in line with market consensus. Core inflation was at its lowest level since March 2021. However, the latest data was not enough to trigger expectations of a Fed rate cut, as investors believe the Fed needs more evidence to gain confidence that inflation is on track to meet its 2% target.
Higher-than-expected Eurozone inflation may not stop the ECB from cutting interest rates this week, but it could signal a halt in July and a slower rate cut in the coming months. According to Reuters, financial markets are forecasting ECB rate cuts of nearly 25 basis points (bps) in June and 57 bps in 2024. Traders will be watching Lagarde's press conference closely for more signals on the pace of rate cuts beyond June. Any dovish message from the ECB is likely to put pressure on the euro (EUR) and create a headwind for EUR/USD.
Trading recommendation: Trade predominantly with buy orders at the price level of 1.0875. We consider sell orders at the price level of 1.0830.
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