EUR – Interest Rate Spread Outlook Weighs on Euro

Rising market expectations for a Fed rate hike this year continued to support the dollar. The dollar rose on Wednesday, but gains were limited, as Fed Chairman Warsh stated that inflation expectations and risks had eased in recent weeks and reiterated the Fed's unwavering commitment to its 2% inflation target, while setting a timeline for the Fed to "find" and utilize higher-quality, real-time data within 9 to 12 months. When asked whether artificial intelligence could push up inflation, Warsh responded that the Fed's responsibility is to ensure AI does not contribute to inflation, rather than analyzing how its specific applications affect resource pressures.

The euro weakened against the dollar on Wednesday after Eurozone June inflation fell more than expected, dropping below 3%, easing pressure on the ECB to raise interest rates. Market focus shifted to tonight's US June non-farm payrolls report, with expectations of 110,000 new jobs and an unemployment rate of 4.3%. Wednesday's ADP data showed only 98,000 new private sector jobs, below the expected 118,000, adding uncertainty to the dollar's direction.

The euro has weakened against the dollar since its April high of 1.1848, rebounding slightly after testing 1.1324 last week, and hovering around 1.14 this week. On the upside, the 25-day moving average remains a key level to watch, as recent rebounds have been hampered by this indicator, currently at 1.15. Until a clear breakout above this level is achieved, the euro/dollar pair is expected to remain under pressure. Initial targets are 1.1320 and 1.12, with the next levels at 1.1060 and 1.10. Medium-term support is seen at 1.0870. Resistance levels are at 1.1430 and 1.1500, with the next level at 1.1620. After that, watch the 1.1660 level, which is the neckline of a previous double-top pattern.

Forecast range:

Resistance 1.1430 - 1.1500* - 1.1620 - 1.1660*

Support 1.1320 - 1.1200 – 1.1060 - 1.1000 – 1.0870

News Summary

29 / 6
Eurozone May 3-month M3 Money Supply YoY +3.0%
Eurozone May Private Sector Loans YoY +3.1%
Eurozone May M3 Money Supply YoY +3.2%
Eurozone June Services Confidence Index 3.2
Eurozone June Industrial Confidence Index -7.7
Eurozone June Economic Confidence Index 95
Eurozone June Business Climate Index -0.38
Eurozone June Consumer Confidence Index -17.7

30 / 6. Germany's June import price index rose 6.8% year-on-year and 0.7% month-on-month. Germany's May real retail sales rose 1.8% year-on-year and 1.1% month-on-month. France's May PPI fell 0.3% month-on-month. France's May CPI rose 2.0% year-on-year and fell 0.3% month-on-month. France's May consumer spending rose 0.5% month-on-month. Germany's May unemployment rate was 6.3%. Germany's May unemployment numbers fell by 1,000. Germany's June HICP fell 0.2% month-on-month and rose 2.4% year-on-year. Germany's June CPI fell 0.3% month-on-month and rose 2.3% year-on-year.

1 / 7. Italy's June Manufacturing PMI was 52.2. France's June Manufacturing PMI was 51.2. Germany's June Manufacturing PMI was 50.3. The Eurozone's June Manufacturing PMI was 51.4. The Eurozone's June Core HICP preliminary annual rate was +2.4%, and the preliminary monthly rate was +0.2%. The Eurozone's June HICP preliminary annual rate was +2.8%, and the preliminary monthly rate was -0.1%.

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