The euro is not moving much today. It is currently trading at 1.0819 against the US dollar, which is a slight increase of 0.05%.
Investor confidence in the eurozone, as measured by the Sentix Investor Confidence index, took a hit in July. The index dropped to -7.3, following a small gain in June. This downward trend has been ongoing since March 2022, despite some positive signs in the eurozone economy. However, investors remain cautious about the economic outlook for the region.
On the inflation front, the eurozone has seen significant improvements. The European Central Bank (ECB) has managed to reduce inflation from double-digit figures to 2.5% in June through a series of rate hikes. While inflation still exceeds the ECB’s target of 2%, the central bank remains confident that it will continue to decline. In fact, the ECB recently lowered rates, anticipating a further decrease in inflation.
ECB Vice President Luis de Guindos warned of potential challenges ahead, stating that inflation could face a “bumpy road” in the coming months. He emphasized that rate decisions are not set in stone and will depend on future inflation data. Market expectations suggest a 33% chance of a rate cut at the ECB’s upcoming meeting on July 18, with a higher likelihood of two rate cuts by the end of the year. The focus is on services inflation, which is currently at 4.1%.
Meanwhile, Federal Reserve Chair Jerome Powell is speaking about monetary policy before a Senate banking committee. Investors are eager to hear any hints about a potential rate cut in September. Powell recently indicated a cautious approach, stating that the Fed will need more evidence of declining inflation before considering a rate cut. However, market sentiment is leaning towards a September cut, with a 72% probability according to the CME’s FedWatch tool.
From a technical perspective, EUR/USD is facing resistance at 1.0824, with further resistance at 1.0845. On the downside, support levels are at 1.0802 and 1.0781.
Overall, the euro’s response to falling investor confidence and inflation concerns remains uncertain, with market participants closely monitoring central bank decisions and economic data for guidance.