Optimism Lifts Dollar Amid Fed Hike Speculations & Debt Deal

U.S. Inflation Still Resilient. NFP Report Ahead.

The greenback is on the offensive, fuelled by growing optimism about the U.S. Federal Reserve implementing further rate hikes. It seems that a deal regarding the debt ceiling has been reached between U.S. President Joe Biden and House Speaker Kevin. The $31.4 trillion debt ceiling will be suspended until January 1st, 2025; however, the deal still has to go through Congress for a vote.

Data released Friday showed that consumer spending in the U.S. exceeded expectations in April, and inflation also accelerated. The Core PCE Price Index posted a 0.4% change, while the forecast was 0.3% (same as the previous value). These indicators suggest that the U.S. economy is still resilient and that another rate hike may be needed.

According to the CME FedWatch tool, the probability of the Fed raising rates by 25 basis points at their next meeting has increased to 62%, compared to approximately 26% just a week ago. This implies that the market is increasingly anticipating a rate hike by the Fed. The Non-Farm Payrolls report and the rest of the jobs data scheduled for later this week, will reveal more pieces of the puzzle.

Key Data for the Week Ahead

Banks in the U.S. will be closed today in observance of Memorial Day. Many Banks across Europe will also be closed due to Whit Monday.

Tuesday at 2:00 pm GMT, traders will direct their attention to the release of the U.S. Consumer Confidence, a survey of about 3,000 households that focuses on the respondents’ opinion regarding the general economic conditions.

The German Prelim CPI will be released Wednesday at 12:00 pm GMT, followed Thursday at 9:00 am GMT by the Eurozone CPI Flash Estimate and Core version of the same indicator. The U.S. Manufacturing PMI comes out later in the day, at 2:00 pm GMT.

The main event of the week will be the Non-Farm Employment Change, scheduled for Friday at 12:30 pm GMT. At the same time, we take a look at the U.S. Unemployment Rate and Average Hourly Earnings. These three indicators paint an accurate picture of the U.S. jobs situation and usually create a lot of volatility on USD pairs.

Technical Outlook – EUR/USD

The pair is currently trading at 1.0720, just below the previous support at 1.0775. Although we can safely say that support has been broken, the daily candles are small and it looks like momentum is starting to fade.

The Relative Strength Index is approaching oversold and the pair has already touched the lower Bollinger Band, which increases the chances of a bounce north. The lack of bearish momentum combined with these factors may trigger bullish movement. Keep in mind that price action this week will be data-dependent, with emphasis on Friday’s Non-Farm Payrolls report.