Euro and Dollar in Focus React to Business Activity Data

Euro and dollar in focus react to business activity data and central bank notes, influencing trading sentiments.

Asia Session Recap:

China’s manufacturing sector faced contraction after two months of expansion in May, with the Purchasing Managers’ Index (PMI) dropping to 49.5 from the previous month’s 50.4. Weakness in new orders, foreign sales, and employment contributed to the decline, marking the softest expansion since January. Concurrently, PMI’s services sector remained relatively stable at 51.1, missing market expectations. These developments could exert downward pressure on crude oil prices during the day.

Europe & US Sessions Expectations:

In the Euro Area, inflation, as measured by headline and core Consumer Price Index (CPI), eased over the past year, with April figures at 2.4% and 2.7%, respectively. In May, while analysts expect core CPI to remain unchanged, they forecast headline CPI to rise to 2.5% year-on-year. A resurgence in inflationary pressures could serve as a bullish catalyst for the Euro in the short term.

Meanwhile, the US is anticipating a potential easing in the April Personal Consumption Expenditures (PCE) Price Index, following softer Consumer Price Index (CPI) data released earlier. Additionally, the Chicago Purchasing Managers’ Index (PMI) could see a slight improvement from April’s low reading. Still, any deviation from expectations might induce selling pressures on the US dollar during the session.

Dollar Index (DXY) Outlook:

The Dollar Index (DXY) could face selling pressures should the PCE Price Index and Chicago PMI miss market expectations during the US session.

Gold (XAU) Analysis:

Gold prices might experience a slight bullish bias if the PCE Price Index and Chicago PMI disappoint, indicating a potential dollar weakening.

Euro and Dollar in Focus React to Business Activity Data

Currency Focus:

• Australian Dollar (AUD): With no major news events, the AUD could experience slight fluctuations, trading between support at 0.6590 and resistance at 0.6670.
• New Zealand Dollar (NZD): The NZD could maintain its current levels, with support at 0.6090 and resistance at 0.6170.
• Japanese Yen (JPY): Despite Tokyo’s core CPI rising to 1.9% year-on-year, remaining below the Bank of Japan’s target, the yen might experience upward drifts throughout the day.
• Euro (EUR): Eurozone inflation, particularly headline CPI, could influence a bullish sentiment for the Euro amidst expectations of a 2.5% year-on-year increase.
• Swiss Franc (CHF): Switzerland’s robust economic growth could sustain demand for the franc, further pressuring USD/CHF.
• British Pound (GBP): The Pound might exhibit bullish tendencies, with cable trading between support at 1.2680 and resistance at 1.2795.
• Canadian Dollar (CAD): Despite an uptick in Canadian GDP, the Loonie might experience selling pressures during the US session, particularly if GDP data disappoints.

Oil Market Analysis:

China’s manufacturing sector’s contraction might add downward pressure on crude oil prices during the day.

Central Bank Notes:

European Central Bank (ECB): The ECB kept the three key interest rates unchanged for a fifth consecutive meeting, maintaining the primary refinancing rate at 4.50%. Should inflationary pressures return, the ECB may consider adjusting monetary policy to ensure inflation returns to its 2% medium-term target.

Bank of Japan (BoJ): Tokyo’s core CPI rose to 1.9% year-on-year, remaining below the BoJ’s 2% target. However, its monetary policy remains accommodative, aiming to guide short-term interest rates to fulfill its price stability target.

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