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The European parliamentary elections still disrupt market confidence. US consumer price index (CPI) inflation data and the Federal Reserve’s rate announcement are scheduled for Wednesday. The Fed’s updated “dot plot,” summarizing future interest rate expectations, is highly anticipated.
EUR/USD suffered its third straight loss on Tuesday as market sentiment soured due to the turbulent European parliamentary elections. Voters in Europe shifted their support towards center-right and far-right parties, while left-leaning parties saw significant losses. This reflects dissatisfaction among European citizens with the current economic situation and the policies of established ruling parties.
Wednesday’s release of US CPI data and the latest Federal Reserve rate decision are at the forefront of investors’ minds, with anxieties swirling about a significant change in the Fed’s “dot plot.” The Fed is generally expected to maintain interest rates this week, but markets are eager to see if the dot plot still reflects plans for rate cuts in 2024.
US CPI inflation is expected to decline to 0.1% MoM in April compared to 0.3% the previous month. Annualized core CPI inflation is forecast to fall slightly to 3.5% YoY from 3.6%.
The Fed’s policy statement and its latest rate decision will garner significant attention on Wednesday, but most investor focus will be on revisions to the dot plot. As expectations for rate cuts in 2024 have been steadily diminishing, investors increasingly worry that the Fed’s announcement on Wednesday will signal a shift in the dot plot, excluding any rate cuts for the remainder of the year.
Technical Outlook
In just three days, EUR/USD went from challenging the upside of a downtrend line to falling back into the bearish territory, dropping below declining technical levels established near the 2024 highs of 1.1150. The pair has slipped below its 200-day exponential moving average (EMA) at around 1.0814 and is testing support near 1.0750 on the downside.
