EUR/USD capitalizes on improved market sentiment, subdued US Dollar

• EUR/USD moves higher above 1.0780 as the appeal for risky assets improves.
• The ECB is expected to start reducing interest rates in June.
• Investors keenly await the US inflation data for fresh guidance on the Fed’s interest rates.

EUR/USD rises to 1.0780 in Monday’s European session due to improved market sentiment. The major currency pair holds gains as traders have priced in that interest rate cuts from the European Central Bank (ECB) will be more and start earlier than the Federal Reserve (Fed). Financial markets have anticipated that the ECB will reduce interest rates by 70 basis points (bps) this year and will start lowering them from the June meeting.

On the contrary, the Fed is expected to begin reducing interest rates from September and investors expect the Fed to bring down borrowing rates by 45 bps by the year-end. 

This week, the Euro will be guided by Eurozone Q1 preliminary Gross Domestic Product (GDP) data, which will be published on Wednesday. The Eurostat is expected to report that the economy has grown steadily by 0.3% and 0.4% on a quarterly and an annual basis, respectively. The GDP data will provide fresh cues about the Eurozone’s economic outlook. EUR/USD will also be guided by the US Consumer Price Index (CPI) data for April, which is also set to be released on Wednesday. 

Daily digest market movers: EUR/USD gains ahead of crucial Eurozone, US economic data

• EUR/USD clings to gains near 1.0780 as the market sentiment is upbeat. S&P 500 futures register nominal gains in the European session as investors shrugged off uncertainty ahead of the United States Consumer Price Index (CPI) data for April, which will be published on Wednesday.
• Economists have forecasted that annual headline inflation declined to 3.4% in April from 3.5% in March. The annual core CPI, which excludes volatile food and energy prices, is estimated to have decelerated to 3.6% from the prior reading of 3.8%. Monthly headline and core inflation are expected to have slowed to 0.3%, compared to the former reading of 0.4%. 
• US consumer inflation data will significantly influence market expectations for Federal Reserve rate cuts, which investors are currently anticipating from the September meeting. The CME FedEWatch tool shows that there is a 61% chance that interest rates will come down from their current range of 5.25%-5.50%.
• Before the US CPI data, investors will focus on the US Producer Price Index (PPI) data for April, which will be published on Tuesday. The producer inflation data will indicate whether business owners hiked or reduced prices of goods and services at the premises.
• The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is subdued near 105.30 in Monday’s European session. Last week, the US Dollar came under pressure after a significant rise in Initial Jobless Claims for the week ending May 3 that dampened investors’ confidence in US labor market strength.  

Technical Analysis: EUR/USD plays around 200-day EMA

EUR/USD recovers Friday’s losses and rises to 1.0780, close to the 200-day Exponential Moving Average (EMA), which trades around 1.0780. 

The shared currency pair is steadily approaching the downward-sloping border of the Symmetrical Triangle pattern formed on a daily timeframe, which is plotted from December 28 high around 1.1140. The upward-sloping border of the triangle pattern is marked from the October 3 low at 1.0448. The Symmetrical Triangle formation exhibits a sharp volatility contraction.

The 14-period Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, suggesting indecisiveness among market participants.