Weekly EurUsd Outlook for June 3, 2024 – Favorable Euro Window Amidst Inflation Concerns

• Economic activity shows no signs of slowing down, and the Federal Reserve is giving no indication of easing interest rates, which are consequently adjusting upwards. Stock markets are awaiting the ECB and Federal Reserve meetings for a clearer picture of the evolution of their respective monetary policies.
• In Europe, inflation is rearing its head again, which might prompt the ECB to take another pause before cutting rates in June. Notably, data from Germany have been surprising.
• EurUsd is returning to its lows but is avoiding falling below key support levels like 1.08. This could present a long entry opportunity for the European currency.

ECB Rate Decision Nears Amid Rising European Inflation

The ECB’s rate decision is approaching, and the preliminary inflation data for May is crucial for understanding whether Frankfurt will act in this direction or be swayed by some conflicting signals that have emerged in recent days. Inflation is indeed rising in Germany, according to preliminary May data. The 2.4% figure exceeds the previous 2.2%, with core inflation at 3%. Similarly, Spanish inflation has risen to 3.8%. Italy and France are at 2.7%. The aggregate European data also exceeds expectations, rising to 2.6%, with core inflation at 2.9%. While a June rate cut seems out of the question, the likelihood of a second cut by November has decreased.

Meanwhile, in the United States, where Donald Trump faces 34 charges, the Beige Book did not provide any significant updates, except for confirming the persistence of fairly widespread regional activity growth, which compels the Federal Reserve to adopt a wait-and-see approach. This cautious stance has pushed Treasury yields higher than in recent weeks, putting some pressure on the euro, although volatility remains very low.

Technical Analysis – EurUsd Pullback Presents Long Entry Opportunity

Technically, the EurUsd pullback could be a long entry opportunity for latecomers. As clearly seen from the chart, the support provided by the short-term moving average and the previous downtrend line has prevented the pair from falling dangerously below 1.08, which would have undermined the entire chart structure. The euro’s ability to rebound might indicate the pair’s willingness to approach significant resistance levels ahead of the ECB meeting.

This overall climate of uncertainty is also well-reflected in the Dollar Index chart. While we’ve understood how important the 1.08 level is for EurUsd, there is little doubt that the greenback has so far reacted excellently around key support levels that have sustained the bull market since January. Therefore, great attention should be paid to the next movement because a definitive restart above 106 would signal a concrete possibility of a strong dollar in summer, a period generally unfavorable to the dollar. Thus, we see contradictory signals from EurUsd and the Dollar Index, which might finally resolve some doubts about the summer strategy following the respective central bank meetings.