Hopes of a July Rate Cut Dissipate as U.S. Inflation Swells
EUR/USD Breaks Long-Term Trend Line. Are the Dollar Bulls Back?
The greenback is riding on a bumpy road, with clouds of uncertainty still covering the landscape. President Trump’s policies have weighed on the dollar, and the tariffs have started to make their presence known, as shown by last week’s Consumer Price Index that came in above expectations.
The Core CPI increased 0.2% from the previous 0.1% and the headline CPI increased by 0.3% from the previous 0.1%. This took the yearly CPI to 2.7%, a notable step up from the previous 2.4%. It looks like a rate cut is slipping further and further away, with the CME FedWatch tool registering a 95.9% chance the rate will remain unchanged at the next Fed Meeting, which is scheduled for the end of the month.
On the tariff scene, a trade agreement with Japan is still “in the realm of possibility,” according to U.S. Treasury Secretary Scott Bessent. However, Japan felt disrespected by the tariff letter that was already sent by the Trump administration, so it will be interesting to see how far the “realm of possibility” stretches.
Trump also sent a letter to the European Union, mentioning 30% tariffs, but later adjusted those to 15% – 20%. He dismissed the idea of a zero tariff structure between the two sides, and the EU trade commissioner was not very fond of the latest talks with Washington. It looks like the EU and the US still have a long way to go until they reach common ground.
Economic Calendar Highlights
The week is light in terms of economic releases in the first days of the week, but action picks up on Thursday with a bunch of Purchasing Managers’ Indexes (PMIs). The French, German, and UK PMIs will be released early in the morning, followed at 1:45 pm GMT by the U.S. Manufacturing and Services PMIs.
Also Thursday, the European Central Bank will announce the interest rate, which is not expected to change from the current 2.15%. The event is scheduled for 12:15 pm GMT and will be followed at 12:45 pm GMT by the usual press conference, which is known for boosting volatility on EUR pairs.
Technical Outlook – EUR/USD
The dollar gave back some of the gains but still finished the week higher against the euro. The pair is still trading above the support at 1.1500, but the price recently broke a long-term bullish trend line, so we will likely see more downside movement in the days to come.
There may be another test of 1.1700 resistance, but if the level holds, the next destination will become 1.1500. The RSI is not showing an extreme reading and is hovering around its 50 level, which is neutral territory. The price is near the lower Bollinger band, so we may see a bullish reaction, but it is not a strong signal. As always in the recent period, any news or rumors regarding the tariffs will affect the greenback.
