So, contrary to some expectations, there were no fireworks to be seen for the EUR/USD following the weekend’s vote in France. After a surprise win for left-wing alliance, which helped to keep Le Pen’s far right from power, this has so far failed to provide any lasting support for the euro or French stocks. It looks like investors may be awaiting signals from the French coalition discussions now. The potential outcomes range from a left-wing government to a technocrat prime minister, which is what seems to be favoured by the markets. Meanwhile, there are no major US data releases to look forward to today or tomorrow, so Jerome Powell’s testimony is likely to be the main macro event later. The week’s big event is the US CPI data release on Thursday, which might reignite volatility in the FX space. For now, the EUR/USD forecast remains only modestly bullish, as it is lacking any significant follow-through.
Powell testimony in focus
Today's key event is Federal Reserve Chair Jerome Powell's testimony before the Senate. Any change from the recent narrative is expected to lean dovish, as Powell may view the June Dot Plot revisions as overly hawkish and aim to adjust his communication based on recent data. If so, this could impact the EUR/USD forecast in a bullish way – especially if he opens the door for a July cut. That may be unlikely, however. So, at best, he may signal that more than 1 rate cuts could be on the cards. At worst, he will remain tight lipped, which would simply mean data-dependency and a long wait until Thursday’s release of CPI.
EUR/USD forecast contingent on US CPI
The US dollar will remain in sharp focus throughout the rest of this week, with the publication of the latest CPI and PPI measures of inflation, as well as the University of Michigan’s consumer sentiment and inflation expectations surveys, plus several speeches by Fed officials.
Nearly all of last week’s US data disappointed expectations, including Friday's release of non-farm jobs report, which showed payrolls rising by 206,000, beating expectations. However, revisions to the prior two months lowered the three-month average to its lowest since January 2021. Unemployment rose to 4.1%, and average hourly earnings grew at the slowest rate since Q2 2021, supporting the Fed's 2% inflation target.
This week, we will have the following key US data and Fed members speaking, all having the potential to impact the EUR/USD forecast:
With upcoming CPI and PPI data, a clearer trend for the US dollar could emerge in the second half of the week, with the greenback so far not showing any downside follow through after falling across the board last week.
EUR/USD forecast: Key levels to watch
Source: TradingView.com
The EUR/USD remains stuck inside two converging trend lines (kind of), but above the 200-day moving average (just about). So, consolidation is written all over the chart of the EUR/USD, but with a mild hint of bullishness in recent price action. In the last couple of days, it has been struggling to get past a key resistance hurdle around the 1.0840-1.0865 area. This is where the bearish trend line going back to last summer comes into play. Understudy, traders are in no rush to push rates above here, ahead of the abovementioned macro events. Perhaps we may see a breakout later in the week if we see a sharp drop in US CPI. But we must observe that bullish breakout before becoming convinced that we have seen the low in the EUR/USD.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
