EUR/USD rises as US Dollar declines ahead of US core PCE Inflation reading

• EUR/USD edges higher near 1.0700 ahead of US core PCE Inflation data for May.
• The US Dollar drops on firm Fed rate-cut prospects.
• The near-term outlook of the Euro is uncertain ahead of French elections and the Eurozone preliminary HICP.

EUR/USD recovers to near the crucial support of 1.0700 in Friday’s European session. The major currency pair rises as the market sentiment remains positive ahead of the United States (US) core Personal Consumption Expenditure price index (PCE) data for May, which will be published on Friday at 12:30 GMT.

The underlying inflation data would influence market speculation on the Federal Reserve (Fed) reducing interest rates from the September meeting, according to the CME FedWatch tool, which also shows that there will be two rate cuts this year. Contrary to market expectations, Fed officials see only one rate cut this year as signaled in the latest dot plot.

On Thursday, Atlanta Fed Bank President Raphael Bostic said rate cuts would become appropriate when they are convinced that inflation is on a clear path towards 2%. When asked about a concrete timeframe for rate cuts, Bostic said “I continue to believe conditions will likely call for a cut in the federal funds rate in the fourth quarter of this year,” Reuters reported.

The US PCE report is expected to show that core price pressures grew at a slower pace of 0.1% against 0.2% in April month-on-month. Annually, the underlying inflation is projected to have decelerated to 2.6% from 2.8% in April. 

Daily digest market movers: EUR/USD is expected to face volatility ahead of key Eurozone events

• EUR/USD holds ground near 1.0700 as the US Dollar corrects. While the EuroÂ’s outlook appears to be uncertain ahead of the French elections outcome and the Eurozone preliminary Harmonized Index of Consumer Prices (HICP) data for June, which will be published on Tuesday.
• Investors worry that new government formation in France could boost spending plans, which could result in a deepening budget crisis. The uncertainty over French elections deepened after French President Emmanuel Macron called for a snap election when his party suffered defeat in the European elections to Marine Le PenÂ’s far-right National Rally (RN). However, the victory of the National Rally is not inevitable due to the formation of the French left, also known as the Popular Front.
• Investors will pay close attention to the Eurozone preliminary HICP data as it will provide clues about European Central BankÂ’s (ECB) subsequent rate cuts. The ECB began its rate-cut cycle from early JuneÂ’s policy meeting in which it reduced its key rates by 25 basis points (bps).
• Meanwhile, the broader decline in price pressures in major nations of the Eurozone has boosted expectations of more rate cuts by the ECB. In France, the preliminary annual Consumer Price Index (CPI) declined expectedly to 2.5% from the prior release of 2.6%. Annual HICP in Spain decelerated to 3.5% from the former reading of 3.8% but remained higher than expectations of 3.4%, while price pressures in Italy were mixed.

Technical Analysis: EUR/USD hovers close to 1.0700

EUR/USD trades inside ThursdayÂ’s trading range as investors await the US core PCE inflation reading to make decisive positions. The downward-sloping border of the Symmetrical Triangle pattern formation on a daily time frame continues to remain a major barrier for the Euro bulls. A fresh downside would appear if the asset 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 the same.