Key events today:

14:00 UTC: USD – ISM Manufacturing Index.

The EUR/USD pair continues to rise around the 1.0850 level during Monday’s early Asian session. Lower than expected U.S. PCE inflation data and better-than-expected Eurozone HICP inflation data provide some support for the major pair. The U.S. ISM Manufacturing PMI for May will be in focus on Monday ahead of the European Central Bank’s (ECB) interest rate decision on Wednesday.

On Friday, the Bureau of Economic Analysis reported that U.S. inflation, measured by the Personal Consumption Expenditures (PCE) Price Index, rose by 0.3% month-over-month in April as expected. The annual PCE for April was 2.7% year-over-year, matching the growth in March and aligning with forecasts.

The core PCE index, which excludes volatile food and energy prices, rose by 2.8% year-over-year, meeting market consensus. Core inflation reached its lowest level since March 2021. However, this data was not enough to trigger expectations of a Federal Reserve rate cut, as investors believe the Fed needs more evidence to be confident that inflation is on track to reach the 2% target.

Higher-than-expected inflation in the Eurozone may not stop the ECB from cutting interest rates this week, but it may signal a pause in July and a slower rate of reduction in the coming months. According to Reuters, financial markets forecast an ECB rate cut of nearly 25 basis points (bps) in June and 57 bps in 2024. Traders will be closely watching Lagarde’s press conference for new signals on the pace of rate cuts after June. Any “dovish” message from the ECB is likely to put pressure on the euro (EUR) and create headwinds for the EUR/USD pair.

Recommendations: Predominantly trading with buy orders at the 1.0875 price level. Considering sell orders at the 1.0830 price level.