- Euro weakens as bond yields fall; Monetary policy remains supported by divergence.
- The ECB will tighten monetary conditions despite a slowdown in the Eurozone.
- The upcoming US CPI data could set the stage for a surprise at the FOMC meeting.
Pair euro/usd The reversed course after Thursday’s US jobs report justifies the Federal Reserve’s (Fed) approach of skipping rate hikes. In addition, the latest data from Canada pointed to a weak labor market, which is in line with recent US jobless claims. EUR/USD is trading down 0.26% at 1.0753.
The divergence between the monetary policies of the Fed and the ECB was helpful for the EUR/USD strength
Falling bond yields across the bloc have hurt the euro. This weakened the general currency, which was unable to maintain Thursday’s gains. EUR/USD held the 20-day exponential moving average at 1.0772 on Thursday despite lifting the pair from the US. Data from the US Labor Department showed the US job market easing as more Americans filed for unemployment in its highest jump since October 2021. But, the main driver of the North American session is the Canadian employment data.
Statistics Canada revealed that the economy shed 17,300 jobs in May, well below forecast growth of 23,200. In addition, the unemployment rate rose to 5.2% from 5.1%, indicating weakness in the labor market.
Although the EUR/USD pair is retreating from the weekly highs, it is expected to consolidate as the two central banks diverge on their monetary policy stance. For the next week, the Federal Reserve is expected to keep rates unchanged in the 5.0-5.25% area. Rates are likely to be hiked by the European Central Bank (ECB) to 3.50%, despite the fact that the Eurozone (EU) reported a technical recession after posting consecutive quarters with negative GDP. However, the ECB will continue to tighten monetary conditions, as emphasized by Isabel Schnabel, a member of the ECB Governing Council, who said: “The cost of doing too little (in monetary tightening) is higher than the cost of doing too much.” “.
On Tuesday of next week, the EU agenda will include German inflation data and the ZEW index of economic sentiment. In the United States, the Consumer Price Index (CPI) for May is estimated at 4.1% year-on-year, while the core CPI forecast is 5.2%. The higher CPI reading could set the stage for a surprise at next week’s FOMC meeting.
EUR/USD Price Analysis: Technical Perspective
The EUR/USD pair is trading sideways, albeit with a slight downside bias, as the 20, 50 and 100 day EMAs sit above the current exchange rate, providing a solid area of resistance above the 1.0767 area. , Based on the price action, EUR/USD should probably test the June 7 high support at 1.0739 before declining further towards the 1.0700 figure, ahead of the June 8 low of 1.0692. A break of the latter and EUR/USD will challenge the 200-day EMA at 1.0688.