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EURUSD LONG while other majors weaker than DollarEuro and Swissi are currently the only majors against US Dollar that are strong. EUR/USD climbs above 1.0820 after soft US PPI data EUR/USD shoots to near 1.0820 as US PPI deflated wider than anticipated UR/USD has jumped strongly to near 1.0820 as US PPI has softened significantly inspired by lower gasoline prices. US monthly headline PPI has registered deflation while core PPI has maintained its pace at 0.2%. The ECB is expected to raise interest rates by 25bps to 4% in order to sharpen its quantitative tools in the battle above 6% inflation. The EUR/USD pair has accelerated dramatically to near 1.0820 after the United States Producer Price Index (PPI) data shows wider-than-expectations deflation. Monthly headline PPI contracted by 0.3% in May while the street was anticipating a 0.1% contraction. Investors should note that the economic data reported a pace of 0.2% in April. Annualized headline PPI has softened to 1.1% vs. the consensus of 1.5% and the prior release of 2.3%. Contrary to that, US monthly core PPI has maintained its pace at 0.2% as expected by the market participants. The annualized core PPI has decelerated to 2.8% against the expectations of 2.9% and the former release of 3.1%. The impact of weak oil prices is clearly visible in extremely soft PPI figures. Firms have passed on the impact of the sheer decline in gasoline prices to the end consumers as the street has not recognized any sign of a slowdown in the overall demand yet. It looks like in the list of soft inflation, easing labor market conditions, and weak economic activities, decelerated PPI has been added, which would propel the need of skipping interest rate hikes by the Federal Reserve (Fed). The US Dollar Index (DXY) has attracted significant offers after softer-than-anticipated and has dropped below the crucial support of 103.00. On the Eurozone front, investors are awaiting the interest rate decision by the European Central Bank (ECB). ECB President Christine Lagarde is expected to raise interest rates by 25 basis points (bps) to 4% in order to sharpen its quantitative tools in the battle above 6% inflation. Economists at Danske Bank expect a pause by the Fed could pose near-term upside risks to EUR/USD, but we still maintain a bearish view on the cross towards the second half of CY2023. The cautious optimism, however, continues as the US Federal Reserve (Fed) and the European Central Bank (ECB) will announce their decisions on monetary policy in the next 24 hours. In the upcoming American session, it will be the Fed’s turn, with the central bank also releasing the Summary of Economic Projections, the so-called dot plot- Additionally, the Federal Open Market Committee (FOMC) Chairman Jerome Powell will offer a press conference. Big Picture EUR BULLISH Continued Eurozone growth over time, and much slower pace of rate cuts from the ECB relative to the Fed Policy rates are unlikely to have peaked at 3.00% Further ECB tightening supporting outlook for medium term strength ECB will likely stay on the path possibly for a while longer ECB may have another 150 bps of rates hikes to go to get to a terminal rate of 4% Growth and monetary policy trends to support Euro Declining inflation in the US ,reopening of China, and cheaper gas prices to avoid a significant economic slowdown The rate hikes will continue and that’s positive for the Euro An improving outlook for the eurozone economy and currency Buying Euro on every ray of sunlight Improving investor sentiment in Europe Euro should show an increasingly solid recovery as the US outlook dims ECB hawks are waking up USD BEARISH The hurdle for raising rates this month is higher, implying fresh US Dollar falls Dollar weakness will pick up pace during 2024 as market attention turns toward Fed rate cuts Fed feels more comfortable with receding inflation US Dollar's position as the primary global reserve currency is being challenged America on verge of losing petrodollar privilege Other regions may need to continue their crusade for inflation, reducing spreads of debt securities yields Combination of lower Fed rate expectations and improved risk sentiment is quintessentially negative No more Fed hikes, potentially lethal to the US Dollar US economy to slip into recession, Fed eventually cut rates quicker than peer institutions Sticky inflation? What is sticky is the downtrend EUR/USD BEARISH THEMES EUR BEARISH Russia is going to get rid of the Euros in their wealth fund European Commission expects the eurozone economy to decline in Q4 2022 and Q1 2023 Italy’s debt could be a worry for the Eurozone Inflation risks are to the upside, while growth risks are on the downside ECB is moving from fighting inflation to worrying about inflation Europe is in a great stress Bracing for a tough winter Underwhelming Eurozone growth should see ECB lag well behind the Fed Europe is the biggest loser in the Russian-Ukrainian war Recession seems likely in Germany Energy crunch could last years The route of the energy plan could drive to a lengthy, messy and choppy period The war is still a huge drag on the European economy USD BULLISH When the dust settles, the Fed is set to continue raising rates US to have permanently higher rates than elsewhere Re-acceleration of inflation and its win over the Fed will continue to catch the market by surprise The Dollar is higher for longer, alongside the Fed’s narrative Stagflation to take USD even higher Hot CPI means the Fed pivot is well beyond the horizon Ugly inflation promises further flight to safety US at war means a stronger dollar Outlook for Fed monetary policy now more hawkish Powell projects pain, higher rates for longer set to keep the dollar bid
Long
by DaveBrascoFX
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