EUR/USD extends recovery above 1.0700, broader trend remains uncertain

• EUR/USD finds interim support near 1.0660 while uncertainty ahead of US core PCE inflation keeps the outlook vulnerable.
• Investors see the Fed reducing interest rates twice this year.
• The Euro will dance to the tunes of the preliminary June HICP data for France, Italy, and Spain on Friday.

EUR/USD rebounds sharply on Thursday’s New York session after declining to a seven-week low near 1.0665 the day before. The major currency pair finds support as the US Dollar (USD) corrects amid uncertainty ahead of the United States (US) core Personal Consumption Expenditures (PCE) Price Index data for May, which will be published on Friday. However, the near-term demand remains vulnerable amid fears of widening policy divergence between the US Federal Reserve (Fed) and the European Central Bank (ECB).

The US Dollar Index (DXY), which tracks the Greenback’s value against six major peers, faces pressure in an attempt to move above the crucial resistance of 106.00. 

Investors will pay close attention to the US core PCE inflation data, which will provide cues about when and how much the Fed will reduce interest rates this year. The US PCE report is expected to show that core price pressures grew at a slower pace of 0.1% month-on-month in May against 0.2% in April. Annually, the underlying inflation is projected to decelerate to 2.6% from 2.8% in April. 

Softer-than-expected inflation figures would boost expectations of early Fed rate cuts, which would be unfavorable for the US Dollar. On the contrary, hot numbers will diminish Fed rate-cut prospects.

Currently, financial markets expect that the Fed will start reducing interest rates at the September meeting and deliver subsequent rate cuts in November or December.

On the economic front, US Durable Goods Orders for May unexpectedly rose by 0.1%. Economists forecasted them to have declined by 0.1% after an expansion of 0.6%, downwardly revised from 0.7%. Fresh orders for Durable Goods are a leading indicator of core Consumer Price Index (CPI) data. Meager growth in New Orders for Durable Goods doesn’t pose significant upside risks to price pressures.

Daily digest market movers: EUR/USD will dance to the tunes of the Eurozone HICP data

• EUR/USD continues to face selling pressure near the round-level resistance of 1.0700. The EuroÂ’s near-term outlook is uncertain ahead of the EurozoneÂ’s election outcome and growing speculation that the ECB will deliver back-to-back rate cuts.
• Investors remain cautious over the outcome of the French election amid speculation that the new government would make significant fiscal policy shifts, which would widen the financial crisis. The uncertainty over the French elections was triggered after French President Emmanuel Macron called for a snap election after his party suffered defeat in preliminary results from Marine Le PenÂ’s far-right National Rally (RN).
• On the monetary policy front, ECB policymakers refrained from committing to any pre-defined interest rate path after the central bank commenced the rate-cutting cycle in its policy meeting in early June amid concerns over wage inflation. However, higher interest rates weigh heavily on overall demand, which impacts activities in manufacturing as well as the service sector.
• Going forward, preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data for June will be under the spotlight next week, as it will provide major cues about the interest rate outlook. Currently, investors expect that the ECB will deliver one more rate cut this year.

Technical Analysis: EUR/USD manages to recapture 1.0700

EUR/USD trades inside WednesdayÂ’s range as investors sidelined ahead of the US core PCE inflation reading. The downward-sloping border of the Symmetrical Triangle pattern formation on a daily timeframe remains a major barrier for the Euro bulls. A fresh downside would appear if the pair delivers a decisive breakdown of the above-mentioned chart pattern.

The shared currency pair establishes below the 200-day Exponential Moving Average (EMA) near 1.0780, suggesting that the overall trend is bearish.

The 14-period Relative Strength Index (RSI) hovers near 40.00. A bearish momentum would trigger if the oscillator slips below this level.