Slowed US Inflation: Best Time to Trade Forex EUR/USD
The EUR/USD pair made significant gains as the US Dollar suffered heavy losses after the release of softer-than-anticipated inflation data. The pair broke above the key threshold of 1.1000 during European trading hours and continued to climb, reaching a session high of 1.1036. Following the release of the US Consumer Price Index (CPI) data, which showed a 0.2% increase in June, below the expected 0.3%, the pair indicated the best time to trade Forex lots. Additionally, the annual CPI came in at 3%, lower than the market’s expectations of 4.8% for the core annual reading.
Stock Market Optimism Grows as Federal Reserve’s Tightening Cycle May Near End
The figures indicate a continued easing of price pressures, reducing the need for further monetary tightening. Speculation grows that the Federal Reserve may be nearing the end of its tightening cycle, leading to increased optimism in the stock market. European stocks extended their early rallies, while Wall Street futures also showed strength, challenging July highs.
In the short term, the technical outlook for the EUR/USD pair remains bullish. The pair is trading around 1.1050, advancing for the fifth consecutive day. Daily chart indicators support the ongoing rally and suggest further gains ahead with positive readings. The 20 Simple Moving Average (SMA) has a bullish slope below the current level, providing dynamic support.
US Dollar Plummets as Inflation Data Disappoints
The US Dollar’s sell-off intensified following the release of the US CPI data. Market reactions were significant, with commodities soaring and Wall Street cheering the potential end of the Federal Reserve’s interest rate hiking cycle. The data showed a 0.2% increase in the CPI for June, while the annual rate slowed to 3%, the lowest since March 2021. This steady decline in inflation softened expectations of more rate hikes from the Fed after the July meeting. While the central bank is still expected to hike rates by 25 basis points in July, it could be the last hike for now.
The Dow Jones and Nasdaq indexes both saw gains, with the Dow Jones climbing 0.25% and the Nasdaq surging 1.15%. US Treasury yields fell, with the 10-year yield dropping to 3.85% and the 2-year yield reaching 4.75%, its lowest level since June 29. As a result, the US Dollar Index (DXY) dropped to the 100.50 area, marking its lowest daily close in a year.
Technical Indicators Support Upward Momentum for EUR/USD Pair
Looking ahead, more US inflation data is expected with the release of the Producer Price Index (PPI) and the weekly jobless claims report. Eurozone bond yields also declined, contributing to the EUR/USD pair’s jump to its highest level since March 2022 after breaking above the 1.1100 threshold. The pair remains bullish, with technical indicators reaching overbought levels. The European Central Bank (ECB) will release the minutes of its latest meeting, providing further insight into its monetary policy decisions.
Main Forex Patterns of the Week
GBP/USD reached fresh 15-month highs, driven by the weaker US Dollar, surpassing the 1.3000 level. The UK is set to release GDP data on Thursday, which could impact the currency pair.
USD/JPY continued its decline for the fifth consecutive day, falling below 138.50. Despite the risk appetite in the market, the Japanese Yen remained resilient, supported by the decline in government bond yields.
In other currency news, NZD/USD experienced a significant jump of 1.85%, breaking through resistance levels and approaching 0.6300. The Reserve Bank of New Zealand (RBNZ) decided to leave the Official Cash Rate unchanged at 5.5% as expected, reiterating its July Monetary Policy Statement.
Finally, USD/CAD saw a bounce at 1.2143 following a 25 basis point rate hike from the Bank of Canada. However, the Canadian Dollar lagged behind other commodity currencies in the market.
