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The dollar strengthens as inflation data, the euro is dragged down by French political noise
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Market Review]: The US dollar strengthens due to inflation data, and the euro is dragged down by French political noise." Hope it will be helpful to you! The original content is as follows:
XM Foreign Exchange APP News - On Wednesday (July 16), the euro/dollar continued its decline after the release of the latest U.S. inflation data, with an intraday report of 1.1600, a new low since the end of June. Yesterday, the US Consumer Price Index (CPI) report showed that CPI rose 2.7% year-on-year in June, higher than market expectations of 2.6%, and further accelerated from 2.4% in May. The data boosted the dollar as markets expected the Fed to suspend interest rate cuts due to inflationary pressures caused by tariffs. Meanwhile, French political uncertainty has rekindled, dragging down the euro's performance, but market sentiment is still mainly driven by the strong US dollar. Fundamental analysis of U.S. inflation and policy outlook In June, the U.S. CPI rose 2.7% year-on-year, and the core CPI (excluding food and energy) rose from 2.8% to 2.9%, indicating that the tariff effect is gradually pushing up the prices of consumer goods. Reuters reported that Fed Chairman Jerome Powell repeatedly stressed that inflationary pressure caused by tariffs is a key reason for suspending interest rate cuts, so the market has lowered its 2025 interest rate cut expectations to 38.5 basis points. However, US President Trump said on TruthSocial that consumer prices remain low and called for an immediate rate cut, indicating policy differences. The U.S. Producer Price Index (PPI), which will be released tonight, is expected to fall slightly from 2.6% to 2.5%, which may further affect market expectations for Federal Reserve policies. Eurozone Economic and Political Pressure Eurozone inflation rebounded slightly, with HICP rising to 2% in June, a slight increase from 1.9% in May. Nevertheless, the euro zone economic recovery was weak, the manufacturing PMI continued to be sluggish, and service industry growth slowed. European Central Bank cut deposit rates to 2% in early June, Governor Christina LaUnless external demand is significantly weaker, there is a lower chance of further rate cuts. The market expects the ECB to maintain a cautious stance in 2025, focusing on whether inflation continues to approach the 2% target. The French political situation adds uncertainty to the euro. French Prime Minister's proposal to cancel two national holidays to ease fiscal deficit pressure has triggered far-right National League (RN) leader Marina Le Pen threatened to overthrow the government unless the proposal was revoked. Although the French fiscal deficit problem has not triggered a significant expansion of the OAT-German bond interest rate spread in the near future, ING foreign exchange analyst Francesco Pesole warned that this is still a "time bomb" of eurozone confidence and may trigger fluctuations in the foreign exchange market in the xm-links.coming months. Reuters pointed out that the interest rate spread between France's 10-year government bonds and German government bonds rose to 87.3 basis points, the highest since 2012, reflecting market concerns about France's fiscal risks. Institutional view, JPMorgan Chase's dollar strength may continue, as the US-European interest rate spread widening and the US economy is better than the euro zone. Euro/USD is expected to test 1.15 in the short term, but if the euro zone economic data improves, it may rebound to 1.18 in mid-2025. Goldman Sachs France's political risks and weak euro zone economy may continue to drag down the euro, but if the dollar is under pressure due to U.S. debt problems (Moody's downgrades U.S. credit rating to Aa1), the euro/dollar may stabilize around 1.16. ING Euro/USD trend is still mainly driven by US dollar sentiment, with 1.16 being the short-term balance point, but if the US PPI data is stronger than expected or the Fed's statement is too hawkish, the exchange rate may fall to 1.15. Technical analysis The recent trend of the euro/dollar is relatively bearish, with the strong dollar and French political noise exacerbating downward pressure. Trends and key levels On the daily chart, the EUR/USD has been down along the decline channel (red line) since early July, falling from 1.18 to 1.16, a drop of more than 1%. The exchange rate is currently close to the lower track of the long-term upward channel (near 1.16), which may provide technical support, and traders need to pay attention to potential rebound opportunities. If it falls below 1.16, the target below points to 1.15 or even 1.1375 (the low point in the June range). If rebounding, the resistance is at 1.1700 (50-day moving average) and 1.1800 (recent highs). Technical indicators (Euro/USD 4-hour chart source: Yihuitong) The 4-hour chart shows that RSI (14) is close to the oversold area, suggesting that there may be a technical rebound in the short term. The MACD signal line is located below the zero axis, confirming bearish momentum, but the lower action energy is slightly weakened. If the PPI data is weaker than expected, it may trigger a rebound to 1.1660-1.1700. Market sentiment CFTC data shows that as of July 8, the euro speculative net long positions rose to 120.5K shares, the highest since December 2023, while institutional short positions increased to 177K shares, reflecting the rising market's bearish sentiment towards the euro.
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