EUR/USD – bearish bias – (1.3375-1.3650)
The euro remains under downward pressure against the US dollar following the package of ECB easing measures announced last week.
The recent rebound in US yields is also serving to reinforce downward pressure on EUR/USD which is trading just above key support levels at around 1.3450 and 1.3500. A break below here would invalidate the up trend which has been in place since the summer of 2012.
The main economic data release from the euro-zone in the week ahead will be the CPI report for May. The ECB has signalled that further easing remains an option but it is unlikely at least until later this year if inflation continues to disappoint.
The upcoming FOMC policy meeting provides the main event risk in the week ahead. The Fed is expected to continue tapering QE by a further USD10 billion. The updated Fed economic forecasts are likely to reveal a downgrade to the real GDP forecasts for 2014, but also another lowering of the unemployment rate projections. The Fed’s updated interest forecasts will have the greatest potential to impact US dollar direction.
The scope for a negative US dollar reaction appears limited as the market is already pricing in less rate hikes than the Fed implied itself in their previous forecasts from March.