Chart of the day - EURUSD (12.06.2024)

Today's session will bring more volatility among a range of assets correlated directly and indirectly with US monetary policy. At 12:30 PM GMT, investors will learn about inflation data from the US, and at 8 pm, the Fed's decision and projection update. In turn, at 6:30 PM GMT Jerome Powell will speak at a press conference. It seems clear that the EURUSD pair will 'nervously' react to any data that 'surprises' investors today, starting with a possible surprise in Powell's narrative, the US CPI data released earlier.

• The huge increase in U.S. employment, in the NFP report (by about 300,000) may prompt the Fed to maintain its hawkish stance, as will data on wage pressures, which in May indicated higher-than-expected wage growth. However, other data from the labour market came in decidedly weaker than the NFP, with Federal Reserve data suggesting that the excess savings from the pandemic period has already been completely 'eaten up' by consumers. 
• While, indeed, a scenario in which more and more Americans are taking on additional work may lift the NFP readings (and not reflect the full situation) - it does mean that there is still plenty of work on the market. However, historically, the labour market has historically not been the best, pre-emptive indicator of an economic slowdown. 
• In view of this, Powell may somewhat divert attention, away from the labour market and towards other data, which are performing (mostly) weaker in the U.S. - offset in turn by renewed increases in oil prices and strong services
• In the end, Powell's communication is unlikely to change significantly, and the Fed chairman will maintain the message that higher rates will remain in place for longer, putting a question mark over any rate cuts, this year. Strong labour market reports 'offset' weak consumption data, and a strong ISM services reading puts a question mark over the extent to which weaker consumption translates into the economy and price pressures. At the same time, brent oil prices have risen from $73 per barrel during the week to close to $83 today, suggesting still possible inflationary pressure from the oil market in the coming months - despite OPEC+ 'suspending' production cuts.
• The market would most like to see the first Fed cuts in July, or September, but the Fed may decide to continue a narrative in which rate cuts remain vague, leading to a shift in expectations from September (down from a recent 70% to now 45% chance), to December or early next year. Looking at the fact that the ECB already cut rates in June, it seems that the difference in bond yields between the two countries, could strengthen the dollar and thus weaken the EURUSD.

EURUSD chart (D1 interval)

The Eurodollar is doing slightly better today, but it has had a downward cascade, during which sellers had an overwhelming advantage. The dovish reception of Powell's statement or lower inflation data from the US could lead to a quick retest of 1.082 and levels higher. On the other hand, the Fed chairman's hawkish pose, higher inflation data from the US and a significant, hawkish revision of the Fed's inflation projections could push the pair below 1.07 and lead to a test of recent local minima - in an extreme scenario even knocking them out. Also, uncertainty around the early elections in France, held on June 30, could raise volatility and weigh to some extent on sentiment on the pair in June.

Source: xStation5