Euro Faces Ongoing Pressure Amid Weak Economic Data and ECB Rate Cuts

The euro remained stable following preliminary June surveys indicating a contraction in France's service sector and a slowdown in Germany's economic activity. Euro zone business growth significantly decelerated due to declining demand, marking the first drop since February, with the services industry weakening and manufacturing deteriorating further.

Euro zone consumer confidence increased by 0.3 points in June compared to May. ECB policymaker Klaas Knot endorsed market predictions of one or two additional rate cuts this year, as inflation trends towards the ECB's 2% target. Although the ECB has started reversing its aggressive rate hikes, it remains flexible in future actions, considering recent stronger-than-expected inflation and wage data. Knot emphasized that inflation is expected to reach the ECB target next year, despite potential challenges, and noted that services inflation remains high.

The European Commission has recommended disciplining France and six other countries for exceeding EU budget deficit limits, complicating extra spending plans. This could impact the National Rally (RN)'s promises of increased public expenditure and a lower pension age.

EY's survey of over 500 business leaders highlights that Europe needs to enhance political stability, reduce bureaucracy, and manage energy price volatility to attract more foreign direct investment (FDI). The second-biggest risk for Europe is political instability, with regulatory burden being the top concern. Economic struggles from high prices and the impact of Russia's war in Ukraine have fueled populism, benefitting the far-right in elections and prompting French President Macron to call a snap national election. Polls show the RN leading ahead of the two-round French vote ending July 7.

Germany's Economy Minister Robert Habeck emphasized that proposed European Union tariffs on Chinese goods are not meant as "punishment" during his visit to China. This trip is the first by a senior European official since the EU suggested significant duties on Chinese-made electric vehicles (EVs) to address what it perceives as excessive subsidies. China warned that this issue could lead to a trade war.

Despite the European Central Bank (ECB) implementing an anticipated interest rate cut earlier this month and projections for two more cuts this year, business activity in Germany slowed, with manufacturing struggles impacting its strong services sector.

German tax revenues rose 2.6% in May due to wage and withholding taxes, despite lower sales and corporation tax revenues. Building permits in Germany fell 17% in April, indicating a downturn in the property sector. German wholesale prices also dropped 0.7% in May. German bond yields fell, while French bond yields remained flat, widening the risk premium.

The Swiss National Bank (SNB) cut interest rates for the second consecutive time, reducing its policy rate by 25 basis points to 1.25%, driven by easing inflationary pressures. The Swiss franc weakened, and stocks rose following the announcement. Despite a recent economic growth rebound and a slight inflation increase to 1.4% in April, SNB Chairman noted that underlying inflationary pressure had decreased.

Traders anticipate one more ECB rate cut this year, with a 64% chance of a second cut by year-end, down from 80% before the June meeting. Upcoming inflation data from France, Italy, and Spain will influence expectations for further ECB actions.

On Friday, the dollar strengthened against major currencies. This rise was supported by strong U.S. economic data and the Federal Reserve's cautious approach to interest-rate cuts compared to more dovish central banks. U.S. business activity hit a 26-month high in June with improved employment and significantly reduced price pressures, indicating a sustained slowdown in inflation.

However, U.S. existing home sales fell for the third consecutive month in May due to record-high prices and increasing mortgage rates, deterring potential buyers. On a positive note, housing inventory reached its highest level in nearly two years, which could potentially stabilize prices and improve affordability if sustained. Despite this, the housing market showed signs of weakness, with drops in housing starts and building permits suggesting that rising mortgage rates had dampened recovery momentum.

Investors are closely monitoring the upcoming U.S. inflation gauge, the personal consumption expenditures (PCE) price index, to see if the slowdown in inflation continues. Previous PCE readings have been inconsistent with expectations, and another similar result could challenge the expectation of imminent rate cuts. The economic calendar for the week also includes June data on consumer confidence, May data on new and existing home sales, a third estimate of first-quarter economic growth, and data on durable goods orders for May. Therefore, the euro is anticipated to remain under continuous pressure throughout this period.

Data for Technical Analysis (1H) CFD EUR/USD

Resistance : 1.0692, 1.0694, 1.0696

Support : 1.0688, 1.0686, 1.0684

1H Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 1.0683 - 1.0688 is touched, but the support at 1.0688 cannot be broken, the TP may be set around 1.0692 and the SL around 1.0681, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.0692 - 1.0697, TP may be set around 1.0707 and SL around 1.0686, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.0692 - 1.0697 is touched, but the resistance at 1.0692 cannot be broken, the TP may be set around 1.0686 and the SL around 1.0699, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.0683 - 1.0688, TP may be set around 1.0671 and SL around 1.0694, or up to the risk appetite.       

Pivot Points Jun 24, 2024 03:16AM GMT

Sources: Investing 1, Investing 2