Euro shrugs as investor confidence tumbles

The euro is showing little movement on Tuesday. EUR/USD is trading at 1.0819, up 0.05% on the day.
The eurozone Sentix Investor Confidence index resumed its losing ways on Monday. The index slid to -7.3 in July, after a 0.3 gain in June. Prior to the June reading, the index had declined continuously since March 2022. There have been signs that the eurozone economy is finding its feet but investors aren’t showing any optimism over the eurozone’s economic outlook.

The inflation picture has improved greatly in the eurozone. The ECB’s steep rate-tightening cycle has slashed inflation from double-digits down to 2.5% in June. Inflation is still above the ECB’s inflation target of 2% but the central bank took the plunge and lowered rates last month, confident that inflation will move lower.

ECB Vice President Luis de Guindos said last week that he expected a “bumpy road” for inflation in the coming months and that there was no predetermined path for rate decisions. The markets have priced in a cut at the July 18 meeting at 33% but see a strong chance of two rate cuts before the end of the year. Whether that forecast materializes will depend to a large extent on inflation data. ECB policy makers are particularly concerned about services inflation, which is running at a 4.1% clip.

Fed’s Powell testifies on Capitol Hill

Fed Chair Powell is testifying about monetary policy before a Senate banking committee and the markets will be looking for clues about a September rate cut. Powell sounded hawkish at the ECB forum in Portugal last week, reiterating that the Fed needs to see further evidence that inflation will continue to fall before hitting the rate-cut button. The markets are more optimistic and smell a September cut. The probability of such a move has climbed to 72%, compared to 63% a week ago and just 46% one month ago, according to the CME’s FedWatch tool.
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EUR/USD Technical

• EUR/USD is testing resistance at 1.0824. Above, there is resistance at 1.0845
• 1.0802 and 1.0781 are providing support

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