Dollar Gains on Eurozone Weakness, PCE Report Looms

EUR/USD Under Pressure, USD/JPY Near Intervention.

On Friday, the U.S. dollar strengthened against major currencies following the release of PMI (Purchasing Managers’ Index) data, which indicated that the U.S. economy is in better shape compared to other major economies.

The U.S. Dollar remained a preferred safe-haven currency due to ongoing political uncertainties surrounding the French snap elections called by President Macron and disappointing PMI data from the Eurozone. This caused the euro to decline further against the dollar, trading below the 50-day Moving Average that was broken 2 weeks ago.

The widening interest rate gap between the U.S. and Japan continues to drive the dollar’s gains against the yen, with the USD/JPY pair hovering near the 160 mark. If the Bank of Japan is getting ready to intervene, we may see wild moves to the downside of USD/JPY. The last time the BoJ intervened, the pair was trading near 160 and it dropped close to 151.

Economic Calendar Highlights

The first notable release of the week will be the U.S. Consumer Confidence survey scheduled for Tuesday at 2:00 pm GMT. Confidence among consumers is tightly related to consumer spending which is an important part of the entire economic activity.

The Final version of the U.S. GDP will be released Thursday at 12:30 pm GMT but the main event of the week is scheduled for release on Friday at 12:30 pm GMT: the Core PCE Price Index. This is the Fed’s preferred inflation gauge and can influence the rate outlook. Analysts expect inflation to drop, which would increase the probability of a rate cut in September. According to the CME FedWatch tool, currently, there’s a 59.5% chance of a cut.

Technical Outlook – EUR/USD

After closing the price gap opened on June 10th, the pair continued on its initial path, with the US Dollar getting the better of the Euro and taking the pair below the bearish trend line. We have a double bottom at 1.0670 and Monday’s trading session is controlled by the bulls.

If the pair closes a daily candle above the bearish trend line, we may see a reversal to the upside and a challenge of the resistance zone at 1.0775. There are two important elements there: the 50-day Moving Average and the horizontal resistance at 1.0775; if the bulls manage to break it, we could likely see a stronger rally.

Of course, all dynamics should be taken into consideration, including the dollar – yen developments, and the key inflation data that’s going to be released later in the week.