Trump Tariffs, Inflation Risks Push Rate Cuts Further Away
EUR/USD Disregards Double Top, Challenges 1.0500 Resistance
The Fed Meeting Minutes released last week pointed to growing inflationary risks stemming from the new Trump tariffs and their impact on consumers. According to the Minutes, businesses have indicated that they would attempt to pass the higher cost of goods to the consumers.
If the higher tariffs raise the price that businesses pay for the goods they purchase, most likely this higher price will be reflected in the final price. After all, businesses don’t want to cut their margins in order to keep the same price.
It’s pretty safe to assume that rate cuts will not be happening anytime soon. At the time of writing, the CME FedWatch tool shows the most likely 25-bps cut will happen in July, with a 45% probability. That month there’s also a 20% probability for a 50-bps cut, with 32% reserved for a no-cut scenario.
Economic Calendar Highlights
The CB Consumer Confidence survey will come out Tuesday at 3:00 pm GMT. It will be interesting to see how the uncertainty surrounding the new Trump tariffs affects the confidence of consumers and their appetite for spending.
The G20 Meetings start Wednesday and will continue throughout the week. Thursday’s highlight will be the U.S. Prelim GDP, released at 1:30 pm GMT but Friday will probably be the most important day of the week, with 2 major inflation indicators.
The German Preliminary CPI will come out Friday at 12:00 pm GMT and the U.S. Core PCE Price Index will follow at 1:30 pm GMT. It is said that the PCE (Personal Consumption Expenditures) is the Fed’s preferred inflation gauge but it is overshadowed by the Consumer Price Index (CPI) which comes out about 10 days before the PCE. The expected change is 0.3%, while last month’s figure was 0.2%.
Technical Outlook – EUR/USD
Although a double top was created at 1.0500, the pair pulled back just a bit and is now challenging the 1.0500 again. If the bullish pressure is not enough to break the double top and we see a reversal from here, then we will have a triple top, which is a more powerful bearish pattern.
We are likely to see a stronger rally now, considering the long period when the price traveled south without a proper pullback. There is also good support at 1.0200 and the pair created a higher low after breaking the long-term bearish trend line. If we get a higher high (which would mean a break of 1.0500), then the possibility of an extended climb will increase.
