EUR/USD Rises as Fed’s Waller Backs July Rate Cut and US Sentiment Improves

• Fed’s Waller Backs July Rate Cut, Pressuring Treasury Yields and US Dollar.
• Improved US Consumer Sentiment and Lower Inflation Expectations Revealed by UoM Survey.
• Upcoming Week Packed with ECB Decision, EU PMIs, and Key US Economic Data.

The EUR/USD currency pair closed Friday’s trading session higher by over 0.26%, influenced by a drop in the US Dollar after dovish remarks from Fed Governor Christopher Waller, which impacted US Treasury yields. However, an uptick in Consumer Sentiment limited the Euro’s rise, with the pair noted at 1.1626.

Wall Street concluded the day on a positive note, buoyed by Waller’s support for a rate reduction in July. Yet, recent statements from Chicago Fed President Austan Goolsbee, who has adopted a more cautious tone due to the latest CPI report indicating initial tariff-induced inflation in goods, tempered the optimism.

The July update from the University of Michigan Consumer Sentiment Index indicated a rise in optimism among households regarding their financial prospects and a decrease in inflation expectations. Meanwhile, housing market data also showed improvement, while the European economic calendar was light, with the market looking for clues on a potential EU-US trade deal.

Looking ahead to next week, the EU economic calendar is set to deliver Consumer Confidence, preliminary PMIs for July, and the ECB’s monetary policy decision. In the US, the agenda includes housing data, S&P Global Flash PMIs, Initial Jobless Claims, and Durable Goods Orders.

Market Movers Daily Digest: EUR/USD Surpasses 1.1600 Despite Robust US Economic Data

• The preliminary July reading of the University of Michigan Consumer Sentiment Index climbed to 61.8, up from June’s 60.7 and slightly above the forecast of 61.5. Joanne Hsu, the survey’s director, commented that consumer confidence in the economy would likely not recover unless inflation concerns are mitigated, such as through stabilized trade policies.
• The survey also indicated a reduction in inflation expectations, with the long-term outlook (five years) adjusted down to 3.6% from 4%, and one-year expectations reduced to 4.4% from 5%.
• Fed Governor Christopher Waller acknowledged the overall stability of the labor market but noted weaker conditions in the private sector. He expressed support for a July rate cut, although he emphasized the importance of considering all perspectives before the upcoming meeting.
• Despite favoring rate reductions, Chicago Fed President Austan Goolsbee cautioned that the new tariffs might complicate efforts to manage inflation, suggesting a more cautious approach to policy adjustments if inflationary pressures intensify.
• Recent US economic indicators have presented a mixed view on inflation. The Consumer Price Index (CPI) is nearing the 3% mark, while the Producer Price Index (PPI) indicates some easing. However, stronger-than-expected Retail Sales data suggest that price increases from new tariffs are a significant factor, rather than underlying demand.
• Several ECB policymakers have recently expressed their positions on monetary policy. Figures like Mario Centeno, De Guindos, Vujčić, and Villeroy have hinted at a possible pause or rate cut, with Fabio Panetta also advocating for easing due to growing risks to economic growth.
• Conversely, Isabel Schnabel and Robert Holzmann argue for maintaining current rates, waiting for more data before making any policy adjustments.

EUR/USD Technical Outlook: Trading Sideways Between Key SMAs, Above 1.1600

The EUR/USD is experiencing sideways trading, with a slight upward bias from a market structure perspective. However, the Relative Strength Index (RSI) indicates a neutral stance, suggesting an equilibrium between buyers and sellers.

If EUR/USD ascends past 1.1650, it could challenge the 20-day Simple Moving Average (SMA) at 1.1692. Surpassing this level may set the stage for reaching 1.1700 and potentially 1.1800.

Conversely, a drop below 1.1600 might bring the pair to the 1.1550 support level, followed by the 50-day SMA at 1.1497. A breach below these levels could lead to further declines towards the 100-day SMA at 1.1266.