Eurozone Economic Data and Central Bank Meetings Shape Investor Sentiment

The euro experienced losses last week but managed to recover slightly in Asian trading due to earlier weak economic data in the eurozone. The data indicated that business growth in the region was virtually stagnant in June, with manufacturing activity declining and the services industry expanding slowly.

Although inflation is currently high at over 6%, economic activity remains weak, indicating that the ECB has failed to tighten policy adequately to control price pressures without pushing the bloc into a recession.

The ECB is set to release preliminary inflation data for June, and although the headline inflation rate is expected to decrease, underlying inflation is anticipated to rise. This poses a challenge for the ECB as it aims to bring inflation down to its target of 2%.

S&P Global data revealed that economic momentum in Europe nearly came to a halt in June. The eurozone purchasing managers index dropped to a five-month low, mainly due to struggling factories in France and Germany.

Eurozone business growth stagnated as the manufacturing recession deepened and the services sector barely showed any growth. This presents a policy dilemma for the ECB as it continues with rate hikes to combat inflation.

The data suggests that the eurozone economy is at best stagnant after two previous quarters of recession, and there is no immediate sign of recovery, although the tourism sector's robust holiday bookings may provide some support in the near term.

ECB President Christine Lagarde surprised markets with a more hawkish tone, emphasizing the need for further rate increases to combat inflation. Traders are now betting on a rate hike in July and expect another one in October, which would raise rates to 4%.

Meanwhile, the US dollar remained near a one-week high against other major currencies as traders assessed the impact of extended monetary tightening cycles on global growth. Concerns over a deep downturn in major economies persisted.

US business activity expanded at a slower pace in early June, primarily due to a deeper contraction in the manufacturing sector. Inflation data presented a mixed picture, with factory input prices shrinking significantly while service providers experienced a five-month high in prices. The overall measure of selling prices, however, dropped to the lowest level since 2020.

Investors eagerly await the personal consumption expenditures price index, the Fed's favored inflation gauge, to gain insights into future interest rates. With inflation surpassing the 2% target, expectations of rate hikes in July persist. They anticipate a panel discussion at the ECB's Portugal forum, featuring Lagarde, Powell, and other central bank leaders, where inflation will be a prominent topic. As a result, it is anticipated that the euro will likely see some pressure at this time when compared to the US dollar.

Data for Technical Analysis (5H) CFD EUR/USD

Resistance : 1.0908, 1.0910, 1.0914

Support : 1.0900, 1.0898, 1.0894             

5H Outlook

Source: Investing.com                                   

Buy/Long 1 If the support at the price range 1.0895 - 1.0900 is touched, but the support at 1.0900 cannot be broken, the TP may be set around 1.0911 and the SL around 1.0891, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.0908 - 1.0913, TP may be set around 1.0921 and SL around 1.0896, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.0908 - 1.0913 is touched, but the resistance at 1.0908 cannot be broken, the TP may be set around 1.0900 and the SL around 1.0917, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0895 - 1.0900, TP may be set around 1.0891 and SL around 1.0912, or up to the risk appetite.       

Pivot Points Jun 26, 2023 02:39AM GMT

Sources: Investing 1, Investing 2