- EUR/USD will be vulnerable to critical events in the week ahead.
- US data will be watched closely as will the Fed and ECB minutes.
EUR/USD was down some 0.5% on Friday due to the pick-up in pessimism about the global economic outlook. The US dollar has found its feet yet again due to the demand for the safe-haven currency. The euro fell to a low of 1.0365 vs the greenback from a high close to the 1.05 area.
The potency of tighter monetary expectations in the face of higher in inflation is playing havoc on markets and supporting demand for US assets which has sent the benchmark 10-year US Treasury yields to one-month lows.
The Federal Reserve is expected to continue to hike rates in the face of soaring price pressures at the same time that investors are worrying over the economic outlook. Data on Friday did little to squash the concerns with US manufacturing activity slowing more than expected in June, with a measure of new orders contracting for the first time in two years.
Nevertheless, the US dollar index gained 0.36% against a basket of currencies to 105.12, albeit still trading shy of the 20-year high of 105.79 reached on June 15. This has crippled the euro, putting the focus back on the five-year low of $1.0349 printed on May 13 even though the European Central Bank is also expected to raise interest rates this month. This will be the first time in a decade, although economists are divided on the size of any hike.
The week ahead
The minutes of the ECB's June meeting will likely be eyed but analysts at TD Securities said they will be ''somewhat stale as we have since heard from many officials at the Sintra conference. That said, we will look for any indication of what is needed for an above 25bps hike in July, and how the risks of weaker growth could impact policy beyond that, given the further deterioration of growth prospects in the euro area.''
Instead, the major focus for the week ahead will lie in the US data once again. Nonfarm Payrolls is expected to show that Employment likely continued to advance firmly in June but at a more moderate pace after three consecutive job gains of around 400k in March-May, the analysts at TD Securities said. ''High-frequency data, including Homebase, still point to above-trend job creation. We also look for the UE rate to stay unchanged at 3.6% for a fourth straight month, and for wage growth to remain steady at 0.3% MoM (5.0% YoY).''
Fed minutes will also be eyed after the Fed's meeting where it surprised markets with a 75bps hike at the June meeting. ''Persistent high CPI inflation and nascent signs of de-anchoring inflation expectations forced the Fed to amp the pace of rate tightening. The meeting minutes are likely to offer further colour around the Fed's more hawkish reaction function,'' the analysts at TD Securities said.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
USD/JPY flat-lines below 151.50 after soft Japanese CPI data
USD/JPY stays defensive below 151.50 after the release of a soft Japan's CPI report and mixed Industrial Production and Retail Sales data on Friday. Japanese verbal intervention also weighs on the pair amid the holiday-thinned conditions on Good Friday. US PCE inflation awaited.
AUD/USD buyers lack vigor above 0.6500 amid Good Friday trading lull
AUD/USD is trading listlessly above 0.6500 in the Asian session amid light trading on Good Friday. The Aussie pair shrugs off encouraging comments from China's FX regulator, as price action remains subdued ahead of the US PCE inflation data.
Gold flirts with record highs above $2,230, all eyes on US PCE data
Gold price flirts with record highs around $2,230 during the Asian session on Friday. The uptick of yellow metal is bolstered by the safe-haven flows amidst growing economic concerns and the prospect of interest rate cuts from the US Federal Reserve.
Optimism price could fall as nearly $90 million worth of OP tokens is due flood markets
Optimism volatility has shrunk in the ours leading to the network’s cliff unlock. It joins the likes of dYdX and Sui, which have similar events on their calendars. As token unlocks are often considered bearish catalysts, investors should brace for a reaction after the event.
Will they won’t they cut rates is the question of Q2?
There has been some significant push back from Fed and Bank of England members around the timing of rate cuts, and the Bank of Japan still haven’t physically intervened in the FX market to stem yen weakness although they are threatening to do so.