EUR/USD trades sideways amid steady US Dollar despite firm Fed rate cut bets

• EUR/USD consolidates around 1.0770 as the US Dollar steadies in the aftermath of US data.
• ECB Stournaras sees the central bank reducing interest rates three times this year.
• Weak US labor market data and poor ISM Services PMI darkens the US economic outlook.

EUR/USD strives for a direction, trading sideways around 1.0770 in Monday’s European session. The major currency pair consolidates as the Eurozone economic calendar lacks tier-1 data this week. The European Central Bank (ECB) is widely anticipated to shift to policy normalization in the June meeting. Therefore, speculation about ECB’s stance on interest rates for the second-half of the year will influence the Euro’s move.

ECB policymakers are divided over extending the interest rate-cut cycle after the June meeting. A few policymakers believe that extending rate cuts from the July meeting could revamp price pressures. For the entire year, ECB policymaker and Bank of Greece Governor Yannis Stournaras said in an interview with a Greek media outlet that he sees three rate cuts this year. He sees a rate cut in July as possible and added that the Eurozone’s economic rebound in the first quarter of the year made three cuts more likely than four. The Eurozone economy expanded by 0.3% in the January-March period, beating expectations of 0.1% gain.

Daily digest market movers: EUR/USD consolidates as US Dollar steadies

• EUR/USD exhibits a sideways move around 1.0770 as the US Dollar remains broadly steady in the aftermath of the United States labor market and the ISM Services Purchasing Managers Index (PMI) data for April released on Friday. The US Nonfarm Payrolls (NFP) report showed that fresh labor additions were significantly lower than the consensus and wage growth softened on a monthly and an annual basis. 
• Easing labor market conditions weighed on the US Dollar Index (DXY), which fell to an almost four-week low of 104.60. However, the USD index recovered quickly as the ISM Services PMI showed that businesses pay higher prices for inputs. 
• The ISM Services Prices Paid rose to 59.4 in April from 53.4, which suggested a stubborn inflation outlook. The inputs in the service sector are mainly the salaries paid to employees, which often leads to higher consumer spending and eventually prompts price pressures. Though the ISM Services PMI, which represents the service sector that accounts for two-thirds of the economy, falls below the 50.0 threshold to 49.4, the lowest reading since December 2022.
• Easing labor market conditions and weak ISM Service PMI have raised concerns over the US economic outlook. These have strengthened speculation for the Fed reducing interest rates in the September meeting. The CME FedWatch tool shows that traders see a 70% chance that interest rates will be lower than actual levels in September.
• Contrary to market expectations, Fed Governor Michelle Bowman said on Friday she would be willing to raise interest rates further if progress in declining inflation to 2% stalls or reverses Reuters reported. However, she is confident that inflation will decline even if interest rates remain where they are.

Technical Analysis: EUR/USD holds above 20-day EMA

EUR/USD extends its winning spell for the fourth trading session on Monday but is trading inside Friday’s trading range, exhibiting a sideways performance. The near-term appeal of the shared currency pair is upbeat as it is trading above the 20-day Exponential Moving Average (EMA), which trades around 1.0730.

Broadly, EUR/USD exhibits a sharp volatility contraction due to a Symmetrical Triangle formation on a daily timeframe. The upward-sloping border of the triangle pattern is plotted from October 3 low at 1.0448 and the downward-sloping border is placed from December 28 high around 1.1140.

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