Forex Market: EUR/USD off two-week peak ahead of inflation data, Dollar remains elevated on market caution

Having advanced to a two-week peak last week after the European Central Bank’s first rate hike since 2011, EUR/USD was again under pressure on Monday, as global recession concerns kept the safe haven US Dollar supported.

Federal Reserve officials have indicated a 75 basis point rate hike at the central bank’s policy meeting this week, though the latest red-hot inflation figures from the United States (9.1% YoY CPI growth in June) reinforced the prospect of a more considerable move (100 basis points) later in 2022.

“Recession fears should continue to prevent a solid recovery in risk sentiment, which should incidentally give some extra support to safe-havens (including USD) and may keep the path uneven for high-beta commodity currencies,” ING FX analysts wrote in an investor note, cited by Reuters.

The single currency retreated on Friday against the US Dollar following weak business activity data from Germany and France. Preliminary estimates for Germany showed the S&P Global Manufacturing PMI had dropped to 49.2 in July from 52.0 in June, while signaling the first contraction in factory activity since June 2020.

The Euro has been under pressure in recent weeks due to rising energy costs and gas shortage concerns in Europe.

“We think 1.0200 could prove to be an anchor for EUR/USD for the remainder of the summer, but re-testing parity is a tangible risk in the current high-volatility environment,” ING analysts wrote.

Euro traders will pay close attention to Euro area inflation figures at the end of the week, since the ECB will likely consider macroeconomic situation to a greater extent when adjusting policy in the future.

As of 9:00 GMT on Monday EUR/USD was inching up 0.07% to trade at 1.0221, while moving within a relatively tight range. Last Thursday the major Forex pair climbed as high as 1.0278, which has been its strongest level since July 5th (1.0449).

EUR/USD has retreated 2.28% so far in July, following another 2.31% loss in June.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.0200
R1 – 1.0270
R2 – 1.0325
R3 – 1.0395
R4 – 1.0465

S1 – 1.0144
S2 – 1.0074
S3 – 1.0019
S4 – 0.9963