EUR/USD rebounded impressively to show flat within the session after dropping greater than 100 pips earlier within the day when it was hit on the again of very weak PMI knowledge. However the turnaround is now full and there may very well be extra beneficial properties as we head right into a busy week.
Sentiment improved in direction of danger property after Ukraine and Russia signed a UN-backed deal to permit hundreds of thousands of tonnes of grain to be exported from blocked Black Sea ports. This has the potential not solely to avert the specter of a serious international meals disaster, but additionally to cut back inflationary pressures. The truth that Russian gasoline flows have restarted after upkeep work on the Nord Stream 1 gasoline pipeline was accomplished is additional excellent news.
A part of the explanation EUR/USD recovered had nothing to do with the euro, however every little thing to do with the US greenback. The buck fell throughout the board as bond yields fell on rising considerations about an financial slowdown that, available in the market’s eyes, would set off charge cuts by the Fed. Properly, in actual fact, the euro remained in reverse towards most different main currencies, together with the pound and the yen.
I nonetheless consider that EUR/USD must appropriate in direction of at the least 1.0350, whereas a retest of the 1.05 deal with can’t be dominated out both, given the current bullish worth motion, together with the considerably spectacular restoration from at the moment. Nevertheless, all bets are off if charges break under the 1.0150 help degree first. In that state of affairs, one other new parity take a look at could be doubtless.
EUR/USD will face one other testing week, with macro occasions (and firm information) to look at from each side of the Atlantic. Highlights of the macro embody:
- FOMC charge determination (Wednesday) – Inflation stays very popular within the US. The annual CPI accelerated to a four-decade excessive of 9.1% in June, beating analysts’ expectations for the fourth time. The Fed has been dealing with aggressive charge hikes to regulate costs, even at the price of financial progress. Count on one other 75 foundation level hike.
- US GDP forward (Thursday) – With inflation persevering with to eat away at client disposable revenue and company revenue margins, there’s a rising sense that aggressive Fed tightening will push America into recession. Is America already in a technical recession? Manufacturing fell 1.6% within the first quarter on an annualized foundation. One other unfavorable impression means technical recession.
- CPI and GDP of the Eurozone (Friday) – The ECB lastly started its struggle towards inflation with a 50 foundation level charge hike, with President Lagarde warning that inflation may speed up additional and that future charge choices will rely on knowledge. The CPI and the GDP are clearly essential in that sense, which ought to focus the euro.