EUR/USD remains in a tight range below 1.0800

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The EUR/USD pair rebounds to 1.0770 in the early stages of the American session. The EUR/USD remains sideways amidst investors’ indecision due to the absence of relevant data in the United States (US) and the Eurozone.

Upside movements in major currency pairs stalled near 1.0800 as the US Dollar (USD) stabilized after investors assessed weak April data from the Non-Farm Payrolls (NFP) and the ISM Services Purchasing Managers’ Index (PMI), reinforcing speculations about a Federal Reserve (Fed) interest rate cut starting from the September meeting.

Despite waning confidence in the US economic outlook, Fed policymakers favor maintaining restrictive interest rates for a longer period due to steadfast inflation outlooks.

On the other hand, financial markets anticipate the ECB to extend its rate-cutting campaign, expected to commence at the June meeting. ECB policymakers have forecasted three rate cuts this year, aligning with market expectations.

The ECB’s confidence in commencing rate cuts from June has been bolstered by consistent easing of price pressures. The Eurozone’s core Consumer Price Index (CPI), the ECB’s preferred inflation gauge, has steadily declined since July 2023. The annual core CPI dropped to 2.7% in April, suggesting inflation is on track to return to the desired 2% rate.

Furthermore, the sharp decline in Eurozone services inflation has also bolstered ECB confidence to cut rates starting from the June meeting. Annual services inflation in the Eurozone softened to 3.7% in April, down from a stable 4% over five months.

Moreover, Eurostat released robust retail sales data for March. Monthly retail sales saw a strong 0.8% increase, surpassing estimates of 0.6%, following a 0.3% contraction in February. On an annual basis, retail sales rose by 0.7% after falling by 0.5% (revised from -0.7%) in February.

Technical analysis of EUR/USD

The EUR/USD pair trades in a tight range around 1.0770. The major currency pair struggles for direction amidst a lack of top-tier economic events. Additionally, the overall trend of the pair is sideways, due to the formation of a symmetrical triangle on the daily chart.

The EUR/USD pair shows a sharp contraction in volatility due to the formation of a symmetrical triangle. The upward edge of the triangle is plotted from the October 3rd low at 1.0448, and the downward edge is situated from the December 28th high around 1.1140. The 14-period RSI moves towards the 40.00-60.00 range, suggesting indecision among market participants.

The pair trades above the 20-day Exponential Moving Average (EMA) near 1.0723, suggesting short-term bullish prospects.