EUR/USD Fundamental Analysis

The euro held steady against the U.S. dollar for the third straight session on Wednesday. Market participants prefer to refrain from action while waiting for U.S. consumer inflation report and the Federal Reserve's rate decision next week. Investors around the world are keeping a close eye on U.S. rate trends as the Fed's latest data and statements have caused the U.S. currency to fluctuate.

EUR/USD has been trading in a narrow range this week, mainly due to concerns over the Fed's upcoming rate decision. In addition, the downtrend in the EUR/USD continues, causing uncertainty among traders about the timing of the Fed's rate hike campaign. However, once there is more clarity on this issue, the euro could potentially show gains.

Significant risk to the euro if the Fed is hawkish

The euro is at significant risk if the Fed adopts a more hawkish course, given current inflationary pressures and addressing issues such as the government debt ceiling. The NY Fed report from Tuesday highlighted the easing of supply-side pressures in May. This easing of inflationary forces has had a significant impact on global markets.

Ahead of next week's Fed meeting, the U.S. consumer price report for May, scheduled for release on June 13, will give investors more information about the state of the world's largest economy. The report is especially important following recent mixed economic data and dovish comments from Fed officials. According to CME Group's FedWatch tool, Fed funds futures indicate a 73% chance that the Fed will keep rates in the 5%-5.25% range.

German industrial output disappoints

In the eurozone, German industrial output in April came in below expectations, raising concerns about the region's largest economy. In addition, the federal statistical office reported a 0.3% increase in production from the previous month, which was lower than the 0.6% increase that had been forecasted.

Despite increases in construction activity and pharmaceutical production, automotive production showed a 0.8% decline. Data for March were adjusted to a 2.1% decline in industrial production, highlighting the ongoing problems of German industry.

Concerns for the German economy are rising

Europe's chief economist, Andrew Cunningham, expressed concerns about the future outlook, pointing to gloomy expectations for the rest of the year. The initial benefits that German industry has enjoyed from improved global supplies and lower gas prices have diminished. Falling new orders, weakening demand and shrinking backlogs could make the exit difficult. Industrial orders fell 0.4% in April, further adding to doubts about the strength of the German economy.

German Manufacturing Decline.

In May, the final HCOB PMI manufacturing index showed a significant decline in new orders. This indicates lower demand, especially for exports to China, Europe and the US. ING's global head of macroeconomics Carsten Brezeski warned that unless there is a marked increase in activity, the recession in the German economy could continue into the second quarter.

Short-term outlook: stability ahead of U.S. inflation data and the Fed's rate decision

In light of the coming US inflation report and the Fed's rate decision, we expect caution from key participants. They are likely to avoid taking large positions due to the high uncertainty surrounding these events. It is prudent to refrain from taking significant positions until there is more clarity.

Trading Scenarios:

Support levels: 1.06320, 1.06810, 1.07060.

Resistance levels: 1.07170, 1.07500, 1.07780, 1.08225.

Main scenario: EUR/USD may continue to trade in a narrow range, given the current uncertainty in the market. If the pair is able to hold above the support level of 1.07060, it may contribute to further growth to the resistance level of 1.07170. In this case, we can consider opening long positions with a target at 1.07170 (take profit) and stop loss at 1.06810 (stop loss).

Alternative scenario: If the pair breaks down the support level 1.07060, it could be a signal to sell. In this case, the target could be 1.06810 (take profit) and the stop loss level 1.07170 (stop loss).