The euro continues to experience problems amid uncertainty caused by the US debt ceiling and low demand for risk assets.The aggressive policy of the Federal Reserve completely overshadows the growth of inflation in the eurozone, which occurred again in April. This also limits the upward potential of the asset.
Meanwhile, a number of European politicians are confident that although the European Central Bank has completed much of its historic campaign to tighten monetary policy, there is still much to be done. Vice President Luis de Guindos noted in an interview yesterday that the ECB's future decisions would depend on the data received in the coming months. This will include core inflation indicators, which are attracting more and more attention from officials and which, according to him, have proven to be more resilient than expected.
Yesterday's data showed that core inflation fell by just 0.1% to the level of 5.6%, while overall inflation jumped again to 7.0%. At a banking conference in Madrid, Guindos said that they still had some way to go in terms of tightening. Guindos did not discuss where he saw the peak of interest rates.
Notably, the ECB slowed the pace of its rate hike to 25 basis points this month as its efforts to return inflation to 2% caused shocks in the banking sector. Meanwhile, markets are betting on at least two more rate hikes. Guindos supposes that the regulator should carefully monitor the situation to ensure financial stability.
However, there are those who believe that tightening may need to continue into the fall of this year. For example, another member of the Governing Council, Joachim Nagel, noted that the European Central Bank might have to continue raising borrowing costs after summer policy changes. Core inflation, which does not include food and energy expenditures, is the main reason for these actions. There is an opinion in the Governing Council that interest rate hikes should continue. The data does not yet allow officials to consider making serious changes to policy aimed at stopping further rate hikes, and this also applies to the period after the summer break.
As for the technical picture of EUR/USD, the market sentiment remains bearish. To gain control, buyers should push the price to 1.0860 or at least above 1.0820. This will allow the euro to rise to 1.0900. From this level, it is possible to climb to 1.0940, but it will only be possible to do with good statistical data from the eurozone. In case of a decline, only around 1.0820, I expect some action from big buyers. If there is no one there, it would be better to wait for a renewal of the low at 1.0790 or to open long positions from 1.0740.
As for the technical picture of GBP/USD, the pressure on the pound remains intact. The price may show a rise only if bulls return control of 1.2500. In the event of this, the price may climb to the area of 1.2535, after which it will be possible to speak about a sharper rally of the pound up to the area of 1.2570. If the pair falls, bears will try to take control over 1.2460. If they succeed, the breakdown of this range push GBP/USD to the low of 1.2420 with the prospect of reaching 1.2380.