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All eyes on the ECB decision

The US stock market continued to climb during yesterday’s trading session. The Nasdaq100 rose by over 2%, closing at a new record high, driven by Nvidia which reached a market capitalization of over $3 trillion for the first time. The S&P500 also closed at a record high of 3543.0, representing a 1.18% increase during yesterday’s session. Lastly, the Dow Jones saw a modest increase of 0.25%.

Yesterday’s data indicated a slowdown in the labor market. The ADP Non-farm Employment Change added 152K jobs in May, down from 188K in April, and lower than the expected 175K new jobs.

On the other hand, the Services PMI showed mixed results. The Services Index advanced to the highest level in 18 months at 53.8. However, the Prices Paid eased further, showing no inflation pressure, while the Employment component continued to shrink. Finally, the new Orders improved to 54.1.

As a result of yesterday’s data, the Fed Fund Futures indicated an increase in the likelihood for the September meeting to 80%, while both the probability for the November meeting surged over 120% and the probability for the December meeting jumped above 200%.

DXY holding above 104.0

The US Dollar Index has advanced for the second day in a row after holding above its solid support level at 104.0. However, technical indicators remain bearish on most timeframes.

In the meantime, the current upside move is expected to remain limited, possibly below the 104.40 and 104.70 resistance areas.

On the downside, a break below 104.0 is still necessary to strengthen the bearish outlook. If this happens, the following key support level is at 103.75.

ECB hawkish cut?

The European Central Bank is poised to start lowering interest rates from record highs, confident that inflation is sufficiently contained to ease the burden on the economy. Despite the fact that the recent inflation data showed a slight uptick across Europe.

Today’s decision might not be about cutting rates; it’s more about the path going forward. Will the ECB commit to further rate cuts in the upcoming meetings? It’s unlikely, especially after the recent rise in inflation.

The ECB might implement a hawkish cut, meaning they will cut without providing a clear path forward, and then adopt a wait-and-see approach before taking further steps.

EURUSD near 1.0900

The Euro broke its bull flag on the daily chart a few days ago and tested its solid resistance at 1.0900 while technical indicators remain bullish on most time frames.

In the meantime, the initial support level is at 1.0860, followed by 1.0835. A hawkish cut by the ECB is expected to limit the downside pressure.

However, a break above 1.09 is still necessary, and a hawkish cut is likely to facilitate such a break. If this happens, it would pave the way for further gains towards 1.0925, followed by 1.0990.

 

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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