Fed Decision in Focus as Warsh Takes the Spotlight

EUR/USD remains bearish despite ECB rate hike and recent rebound

The dollar gave back some of its gains last week after a mixed CPI reading and heightened optimism that the Middle East war is nearing its end. The euro was boosted by the European Central Bank’s (ECB) decision to hike the interest rate from 2.15% to 2.40%, but the pair remained below 1.1600, and the bearish bias is mostly intact.

The US Core CPI (month-on-month) came out below expectations, at 0.2%, but the yearly CPI rose to 4.2%, which was in line with expectations. This is the highest it’s been since 2023, and it will be interesting to see if it will change the rate hike odds. Currently, the first potential hike could come in September, with a 25% probability, according to the CME FedWatch tool.

On Wednesday, the Fed will announce the rate decision, and new Fed Chair Kevin Warsh will hold his first press conference. The rate will stay unchanged, most likely, but it will be interesting to see how Warsh approaches the situation.

Economic Calendar Highlights

The US Retail Sales will be the first major release of the week, scheduled for Wednesday at 12:30 pm GMT. Sales made at retail levels represent the main part of consumer spending, which in turn accounts for the biggest part of the entire economic activity of the country.

The FOMC will announce the interest rate on Wednesday at 6:00 pm GMT, with no change anticipated. The rate announcement itself will not be a major market mover, but the press conference that will be held half an hour later, at 6:30 pm GMT, will likely create stronger volatility. We will probably receive some clues on the new Chair’s stance on monetary policy, and we will see how he plans on dealing with the elevated inflation generated by the US – Iran war.

The last notable event of the week will be the release of the Philly Fed Manufacturing Index, scheduled for Thursday at 12:30 pm GMT. On Friday, US banks will be closed in observance of Juneteenth National Independence Day.

Technical Outlook – EUR/USD

The pair remains on a bearish path despite the climb seen last week. However, the dollar may lose some of its support if an agreement is signed by the US and Iran. For now, the main level to watch is 1.1600, which acted as resistance last week.

If 1.1600 is broken to the upside, then the moving averages will come into play. All three MAs (50-day MA, 100-day MA, and 200-day MA) are clustered just above 1.1600, and the bearish trend line drawn from the 1.2000 high is in close vicinity. All these elements together create a very strong resistance zone, which will be difficult to break.