Euro gathers strength ahead of key central bank meetings

• Euro gathers strength ahead of key central bank meetings.
• Euro benefits from the expected ECB rate hike despite fears of a recession in Europe.
• EUR/USD continues to edge higher after US inflation data.

The Euro (EUR) finds demand on Tuesday as investors adjust their positions while preparing for the highly-anticipated central bank policy announcements. The EUR/USD pair gathered bullish momentum and climbed above 1.0800 for the first time in three weeks.

The Euro's performance is likely to be impacted by President Lagarde's June interest rate decision announcement in the second half of the week. Meanwhile, the Euro continues to outperform the US Dollar as markets fully price in a pause in the Federal Reserve rate hikes in June after the data from the US showed that annual CPI inflation declined to 4% in May from 4.9% in April. 

Daily digest market movers: Euro preserves its strength on Tuesday

• The data from Germany showed that the CPI rose 6.1% on a yearly basis in May, matching the initial estimate.
• The German ZEW headline number showed that the Economic Sentiment Index unexpectedly improved in June, arriving at-8.5 from -10.7 seen in May while beating the market expectation of -13.0. However, the Current Situation Index slumped to -56.5 from -34.8 prior, missing the market expectation of -40.0 by a wide margin.
• ECB President Christine Lagarde is expected to raise interest rates by 25 basis points (bps) to 4.25% despite deepening fears of a recession in Europe.
• The final reading of the Eurozone’s Q1 Gross Domestic Product (GDP) contracted by 0.1%, led by constantly declining factory activities.
• Previewing the ECB meeting, "we expect a 25 bps rate hike along with indications from the ECB that it expects persisting inflation in the Eurozone and does not believe financial conditions have tightened enough to threaten growth, could spur further front-loading of rate hikes and support the Euro," said Economists at Crédit Agricole. "However, we expect the Euro to consolidate mainly against currencies with dovish central banks or banks that have signaled the peak of their tightening cycle, such as the Japanese Yen and the New Zealand Dollar."
• The German economy has already registered a recession after reporting two consecutive quarters of contraction.
• An interest rate hike by the ECB and an unchanged policy stance by the Fed would trim the ECB-Fed policy divergence.
• US Unemployment Rate has climbed to 3.7% and weekly Initial Jobless Claims have been increasing straight for the past three weeks. US Factory activities have been contracting straight for the past seven months and the service sector is hardly showing any expansion.
• Former Dallas Fed Bank President Robert Kaplan said in an interview that he would support a "hawkish pause" at this week's meeting.
• Fed chair Jerome Powell announced that more interest rate hikes are less certain as tight lending conditions by United States commercial banks are barricading inflationary pressures.
• US President Joe Biden is going to announce Federal Reserve Vice Chair and will fill the vacant Fed Board seat on June 21 before the Senate Banking Committee. Fed Governor Philip Jefferson is expected to be the next vice chair, and an open Fed Board seat would be equipped by economist Adriana Kugler.

Technical Analysis: Euro trades near key pivot level

The Euro is confidently driving the major currency pair higher in a Rising Channel chart pattern on a four-hour scale in which each corrective move is considered a buying opportunity by the market participants. EUR/USD has refreshed its three-week high around 1.0800, however, the 200-period Exponential Moving Average (EMA) at around 1.0800 might act as a barricade for the Euro bulls.

Buyers could show more interest if the EUR/USD manages to sustain comfortably above 1.0800. The upside bias could be ruined if the major currency pair drops below June 12 low of 1.0733.