Fed Steady, Euro Slides as Macron Calls Snap Election

EUR/USD Breaks Below Key Levels: Bearish Outlook with Support at 1.0635

Last week the Federal Open Market Committee (FOMC) decided to keep the rate unchanged, as it was largely anticipated, although the CPI showed that inflation is on its way down. During the press conference that followed the rate announcement, Fed Chair Powell emphasized that the Fed is prepared to keep rates steady until there is clear evidence of inflation moving towards the target. Powell also indicated that the Fed remains vigilant and data-dependent, ready to adjust policy as necessary based on economic indicators.

The Euro experienced one of the biggest sell-offs in recent memory, as the French political scene drowned in uncertainty when President Macron made a surprise decision to call for a snap election. On the other hand, the US Dollar was strengthened by the Fed’s hawkish stance and by the fact that only one rate cut is expected to happen this year.

Economic Calendar Highlights

The Empire State Manufacturing Index is scheduled for release on Monday at 12:30 pm GMT. This survey acts as a leading indicator of economic health focused on conditions in the New York state. It can have a visible impact on US Dollar charts but it is not a major market mover.

The U.S. Retail Sales are scheduled for release Tuesday at 12:30 pm GMT. The impact of this report is huge because sales made at retail levels represent the biggest part of the overall economic activity of the country.

Wednesday at 6:00 am GMT we take a look at British inflation with the release of the CPI that is expected to drop from 2.3% to 2.0%. U.S. Banks will be closed in observance of Juneteenth so we may see low volatility.

Thursday the Bank of England will announce the rate at 11:00 am GMT but no change and no surprises are expected. Friday is PMI day, with a bunch of these surveys (Services and Manufacturing PMIs) coming out early in the morning for the European and British economies, while the U.S. versions will be released at 1:45 pm GMT.

Technical Outlook – EUR/USD

Last week we talked about a price gap that occurred when the NFP grossly overshot the expectations. We also mentioned that these gaps are usually closed but the timing is uncertain. Well, this particular gap was closed almost immediately and after the said closing, the pair resumed its downward trajectory.

Now EUR/USD is once again trading below 1.0775 resistance and more importantly, it broke below the long-term bearish trend line seen on the chart. All this comes after a triple top and bearish divergence, which are strong indicators that the price can travel south for an extended period.

The first target is the support zone located between 1.0635 and 1.0600 but a lot will depend on the economic data released throughout the week on both sides of the pond.