- The strong downward pressure on the price performance of the EUR/USD currency pair continues with losses past the 1.0810 support level before settling around the 1.0840 level at the beginning of Thursday's trading.
- Losses for the monthly currency pair increased in the forex market as investors raise their bets on another high by the Federal Reserve Bank. Investors continue to reassess the course of American interest rates.
- There was a quiet repricing of interest rate expectations this week, with the possibility of a rate hike in June and a reduction in bets on interest rate cuts for the rest of the year to some extent.
A strong set of US economic data yesterday put a June interest rate hike firmly on the map as key measures of US retail sales beat expectations, along with industrial production and homebuilder sentiment. Similarly, there has been an outpouring of Fed officials recently, and the common message is that it is too early to even discuss interest rate cuts.
Cleveland Fed Chairwoman Meister went so far as to say she doesn't think the Fed has reached enough restrictive rates yet, throwing her weight behind another hike next month.
However, Meester is a known hawk and is not voting this year, so traders were reluctant to take her words seriously. In the markets, the unraveling of the interest rate cut bets pushed up US Treasury yields, which in turn strengthened the US dollar through the interest rate differential channel. The probability of an increase in the US interest rate in June is currently around 20%, and if traders start to see it as 50-50 there is an opportunity for the dollar to extend its recent gains.
On the political front, investors are grappling with mixed signals about the debt ceiling deal after House Speaker McCarthy said this week that a deal is "possible" even though the two sides remain "far apart" in negotiations. Markets are firmly focused on the risk of a June default, although the real danger may be what happens after a deal is found, with the Treasury flooding the system with bond issuance and potentially draining liquidity from other markets such as stocks.
EUR/USD Technical Outlook
According to the performance on the daily chart below, the general trend of the EUR/USD currency pair is still down and the bears are trying to move to break the 1.0800 psychological support. At the same time is moving the technical indicators toward strong oversaturation levels and the forex investors may consider taking advantage of the opportunity and buying without risk from 1.0770 and 1.0690 levels respectively. And on the other hand and in the same period of time and as I mentioned before, the psychological resistance of 1.1000 will remain the most important for the bulls to control the direction again.
The EUR/USD currency pair will be affected today by the results of the US data on the claims of the unemployed and the reading of the Philadelphia industrial index and the number of existing US house sales. In addition to the reaction from further statements by the policy officials of the American Federal Reserve Bank.
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