This week, the EUR/USD will be in the spotlight as investors react to the upcoming EU GDP data, European Central Bank (ECB) decision, and the latest American inflation data. It is trading at 1.2166, almost unchanged from its close on Friday.
ECB interest rate decision
The ECB will start its monthly meeting on Wednesday and then publish its interest rate decision on Thursday. The release comes at a time when the Eurozone economy has shown some signs of bouncing back.
For example, recent data revealed that the bloc’s the consumer and producer inflation jumped sharply in May. The CPI rose to the ECB target of 2.0%.
Further, consumer confidence in the Eurozone has jumped to the highest level in more than three years. The manufacturing and services PMIs have jumped to the highest level in years, while retail sales have soared recently.
Therefore, analysts will be focusing on the outcome of the ECB decision on Thursday. The consensus, according to Bloomberg, is that the bank’s monetary policy committee will leave interest rates and quantitative easing unchanged. Christine Lagarde will likely caution that the recent data are transitory as the bloc recovers from the pandemic.
The ECB decision will come out two days after Eurostat publishes its latest Eurozone GDP data. The numbers are expected to show that the bloc’s economy contracted by 0.6% in the first quarter on a QoQ basis as countries implemented lockdowns. On a year-on-year basis, analysts expect that the economy contracted by 1.8%.
The EUR/USD pair will also react to the latest inflation data from the United States that will come out on Thursday. Analysts expect the data to show that the headline consumer price index rose by 0.4% in May after rising by 0.8% in the previous month. This will lead to a 4.7% year-on-year increase, which will be higher than the previous 4.2%. The core CPI is also expected to rise by 0.4% month-on-month and by 3.4% year-on-year.
These numbers are important and closely watched because of their role in the Federal Reserve interest rate decision. A higher-than-expected inflation rate will signal that the Fed will likely turn hawkish earlier than expected.
Still, the Fed has some cover from the labor market. On Friday, data by the US showed that the US added 559,000 jobs in May this year. This was a stronger performance than the jobs added in the previous month. But it was lower than the ADP estimate of more than 900k. The data implied that the US had more than 7.3 million fewer jobs than before the coronavirus pandemic started.
The EUR/USD will also react to the latest initial jobless claims numbers from the United States. Recent numbers have shown that the initial claims have fallen to the lowest level since the pandemic started.
EUR/USD technical analysis
The two-hour chart shows that the EUR/USD pair bounced back on Friday after the latest US non-farm payroll data. The pair has formed what seems like a bullish flag pattern. In price action analysis, this pattern is usually a bullish sign. It has also moved above the 25-day and 15-day Exponential Moving Averages (EMA).
However, the pair has also formed a head and shoulders pattern, which is usually a bearish signal over time. Its neckline is at 1.2132. Therefore, the pair will likely bounce back ahead of the ECB decision and US inflation numbers and possibly hit the 1.2220 level. However, the pair will likely resume the downward trend in the longer term because of the H&S pattern.