Euro Decline Shifts Focus to Germany's Upcoming CPI Data

Volatility on Monday was generally low as market participants were less active due to bank holidays, including in the US and EU. However, this will change today as US and EU investors return to the trading floor and Europe releases further inflation data. This morning, The US Dollar Index is again rising, increasing by 0.20% and renewing its monthly highs. The Dollar’s main price driver continues to be the possibility of another interest rate hike, gaining treasury bonds, and the latest debt ceiling agreement. Investors are also closely monitoring comments made by members of the Federal Open Market Committee. The head of the Federal Reserve Bank of Cleveland, Ms. Mester, told journalists that monetary policy would have to “tighten a little more”. 

Economists also advise that the employment data on Friday is likely to be better enough to change the chances of a hike. Therefore, investors will mainly be focused on the inflation data, which will be made public the day the Fed sets the new interest rate. If the official inflation rate does not decline, the chances of an interest rate hike are likely to rise. Market participants would consider this positive for the Dollar but negative for other instruments such as Gold and equities. 

The price of Gold this morning declined to its lowest level since March 17th. However, technical analysts are pointing to a possibility of a change in price action due to the pivot point. Nonetheless, this will largely depend on if the Dollar continues to appreciate, which is the primary driver pushing the price of Gold down. The strengthening Dollar can be witnessed in the EUR/USD, which has declined by more than 3% over its 4-week decline. 

EUR/USD - Euro Declines on Inflation Data

As mentioned above, the EUR/USD shows one of the most apparent downward trend patterns, also gaining momentum this morning. The price of the Euro is declining against most currencies. This includes against the Pound, Yen and Swiss franc. This is mainly due to the Spanish inflation data recently made public this morning. Spain is the fourth-largest economy within the EU, and the country’s inflation rate fell to 3.2%, the lowest since July 2021. The inflation rate was also 0.4% lower than what markets were expecting. Overall, the data is pointing towards potentially a weaker monetary policy. However, economists still believe the European Central Bank will hike at the next meeting. 

The exchange rate has formed a bearish breakout, creating another impulse wave pointing towards a downward trend. The impulse wave measures 0.47%, which is only 0.10% lower than the recent impulse wave average. Therefore, traders should be cautious about retracements regardless of the bearish indications. Currently, crossovers and Bollinger bands are pointing towards a bearish trend. Additionally, oscillators and the volume-weighted average price indicate sellers control the asset. The price still needs to receive indications of being oversold on the Relative Strength Index. A decline below 1.06716 may renew bearish signals, pushing the RSI into the “oversold zone”. This is something investors will be monitoring. 

EUR/USD 15-Minute Chart on May 30th

As mentioned above, the recent decline is being fueled by the Spanish inflation data. However, investors will now focus on the eurozone’s largest economy. Germany will release its Consumer Price Index tomorrow, and it will likely create even higher volatility levels. The monthly inflation data in Germany is expected to decline to 0.2%, the lowest since January. Further, poor inflation data can be damaging for the Euro and may create a more dovish central bank. Investors are also concerned about the extremely low economic growth in Germany. The Gross Domestic Pattern in Germany declined in the previous two months. 

Investors will continue monitoring comments from the monetary policy decision-makers regarding the US Dollar. FOMC member Patrick Harker is due to speak tomorrow afternoon, and traders will scrutinise any comments related to “hikes” or “pauses”. In addition to this, investors will be monitoring the employment data being released tomorrow and Friday. Analysts expect the JOLTS Job Openings data to drop to 9.41 million, but the main focus will be on the Non-Farm Payroll and Average Earnings. The Hourly Average Earnings read 0.5% in the previous month, the highest data for 2023, and can support inflation. The Fed would like to avoid this, and this has been one of the main talking points.

EUR/USD 6-Hour Chart on May 30th

Summary:

• FOMC Member, Ms. Mester, told journalists that monetary policy would have to “tighten a little more”. 
• Economists advise that the employment data is unlikely to be poor enough to change the chances of a hike.
• The EUR/USD shows one of the most apparent downward trend patterns, which is also gaining momentum this morning.
• Spain is the fourth-largest economy within the EU, and the country’s inflation rate fell to 3.2%, the lowest since July 2021. Traders will turn their attention to Germany’s inflation data.