The EUR/USD pair saw a strong decline as the Asian trading session opened. The asset originally saw a slight decline towards the end of the US session last night, gaining momentum as sessions switched. Today’s decline was originally measured by 38 PIPs but has now fallen into a sideways trend. The price continues to experience pressure as the European trading session opens and it is attempting to break out of the current price range. If successful, the price may potentially further decline based on price wave theories. Though traders are advised to exercise caution as multiple announcements are scheduled.
There are fundamental factors influencing both currencies specifically regarding inflation, Central Bank speculation, the US employment sector and the Eurozone’s newly agreed upon oil ban.
The US Dollar index has increased today by 0.25%, so we can see that the movement is related mainly to the US Dollar itself. Economists have advised that the price movement is potentially a result of traders positioning themselves for the significant economic releases later this week as well as traders returning to the safe-haven currency.
Over the past 4 weeks, the Eurozone has been unable to agree on a potential ban on Russian oil in response to their invasion of Ukraine. The main opponent was Hungary which supported the Russian invasion on many points and refused to ban Russian oil. Hungary’s argument is that they are a landlocked country with a strong reliance on Russia’s energy sources.
However, the Eurozone has agreed on a watered-down version of the original plan. European Council President Mr. Michel proposed that the agreed-upon ban would immediately cover more than two-thirds of oil imports from Russia, but would have some exemptions for Hungary.
This has caused a 3.5% increase in the price of oil so far and it is likely to have a strong effect on inflation. More than that, it is bound to further increase political tensions between the “East and West”. As a result, the market’s risk appetite has decreased while the demand for safe-haven currencies has increased.
Some of the Eurozone’s CPI (Consumer Price Index) figures were released yesterday with more announcements scheduled for today. So far, the figures confirm that inflation within the European countries continues to rise, putting further pressure on the ECB (European Central Bank).
For example, May’s inflation figures in Germany and Spain show that the CPI (Consumer Price Index) rose by 0.5% - from 7.4% to 7.9%. The persistence of serious inflationary pressures in the German and European economies further convinces investors that European Central Bank officials will raise rates soon. However, European bankers and economists have advised that even though the signs may point to stronger rate hikes, they are doubtful the ECB will become more hawkish under the current circumstances.
Yesterday was a public holiday in the US, so most institutions were closed, and trading activity was significantly reduced. However, this week investors are expecting multiple statistics from the US labor market, including the number of open vacancies in the JOLTS labor market for April, May employment data from ADP, the NFP figure, and unemployment data, which will be published on Friday.
Investors will be evaluating how rate hikes have and will potentially affect the employment sector, and whether it could withstand the side effects of a sharply tightening monetary policy. All scheduled economic releases are likely to have a strong effect on volatility and the exchange rate.
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