With the beginning of this important week’s trading, the price of the EUR/USD currency pair continues to maintain the recent rebound gains that pushed it towards the 1.0765 resistance level. The rebound gains were in the first place with momentum from the statements of the monetary policy officials of the European Central Bank led by Governor Lagarde. These statements said the bank is ready to move interest rates as soon as possible, as they set the July meeting to be the earliest date for that.
The gains of the euro-dollar pair stopped in recent sessions until it obtains additional strong momentum, as the US dollar still has strength factors that caused the currency pair to fall to its lowest level in five years. The measure of US inflation that the Federal Reserve closely follows rose 6.3% in April of the previous year, the first slowdown since November 2020 and a sign that higher prices may finally moderate, at least for now. The Commerce Department's inflation figure on Friday was lower than a four-decade high of 6.6% set in March. While high inflation continues to cause hardships for millions of families, any slowdown in price increases, if it continues, will provide some modest relief.
The report also showed that consumer spending rose at a healthy annual rate of 0.9% from March to April, outpacing the monthly inflation rate for the fourth time in a row. The constant willingness of the country's consumers to continue spending freely despite price inflation helps sustain the economy. However, all that spending helps keep prices high and could make the Fed's goal of curbing inflation more difficult.
At the same time, consumers' resilience in the face of sharply higher prices points to a recovery in economic growth in the current April-June quarter. The US economy contracted at an annualized rate of 1.5% in the first quarter, mostly due to a widening trade deficit. But analysts now expect that, on an annual basis, it will grow by as much as 3% in the current quarter. Americans have been able to keep spending, despite rising inflation, due to rising wages, the buildup of savings stocks during the pandemic, and the boom in credit card use. So, economists say, these factors could boost spending and support the economy for most of this year.
For his part, US Central Bank Chairman Jerome Powell pledged to continue raising the main short-term interest rate of the Federal Reserve until US inflation drops in a clear and convincing manner.
According to the technical analysis of the pair: On the daily chart, the recent gains of the EUR/USD pair, caused the direction of some technical indicators to move to the upside. It turned to the upside strongly, and the currency pair crossed the resistance levels of 1.0795 and the psychological top 1.1000, respectively. The EUR/USD currency pair is still at the beginning of breaking the descending channel and is currently in need of more momentum. I expect calm movements for the currency pair today due to the American holiday, which weakens liquidity and investors' appetite for adventure.
On the downside, breaking the 1.0560 support level will end the current bullish expectations.
