EUR/USD strengthens on improving market sentiment and weak USD

• EUR/USD rises above 1.0780 as the attractiveness of risk assets improves.
• The ECB is expected to begin cutting interest rates in June.
• Investors are looking forward to US inflation data for further guidance on interest rates from the Fed.

The EUR/USD pair rises to 1.0780 in the late European session on Monday on improving market sentiment. The major currency pair maintains gains as traders have priced in the European Central Bank's (ECB) interest rate cuts to be larger and begin earlier than those of the Federal Reserve (Fed). Financial markets have anticipated that the ECB will reduce interest rates by 70 basis points (bp) this year and that it will begin to lower them from the June meeting.

On the contrary, the Fed is expected to begin reducing interest rates starting in September and investors expect the Fed to lower interest rates by 45 basis points between now and the end of the year.

This week, the euro will be guided by preliminary Eurozone Gross Domestic Product (GDP) data for the 1st quarter, which will be published on Wednesday. Eurostat is expected to report that the economy has grown by 0.3% and 0.4% quarterly and annually, respectively. EUR/USD will also be influenced by April US Consumer Price Index (CPI) data, which will also be released on Wednesday.

Daily summary of market movements: EUR/USD remains firm ahead of Eurozone and US economic data

• EUR/USD is holding on to gains near 1.0780 as market sentiment is optimistic. S&P 500 futures post nominal gains in the European session as investors shrug off uncertainty ahead of April US Consumer Price Index (CPI) data due on Wednesday.
• Economists expect annual headline inflation to decline to 3.4% in April, down from 3.5% in March. The annual core CPI, which excludes volatile food and energy prices, is estimated to have slowed to 3.6% from the previous reading of 3.8%. Headline and core monthly inflation are expected to have slowed to 0.3%, from the previous reading of 0.4%.
• US consumer inflation data will significantly influence market expectations for the Federal Reserve's rate cuts, which investors are currently anticipating for the September meeting. CME's FedEWatch tool shows that there is a 61% chance that interest rates will fall from their current range of 5.25%-5.50%.
• Ahead of the US CPI data, investors will focus on the April Producer Price Index (PPI) data, due out on Tuesday. The inflation data of the producers will indicate whether the businessmen raised or lowered the prices of goods and services in the premises.
• The US Dollar Index (DXY), which measures the value of the greenback against six major currencies, remains stable around 105.30 during the European session on Monday. Last week, the dollar came under pressure from the significant increase in initial jobless claims for the week ending May 3, which undermined investor confidence in the strength of the US labor market.

Technical Analysis: EUR/USD is trading near the 200-day EMA near 1.0800

The EUR/USD pair recovers Friday's losses and rises to 1.0780, near the 200-day exponential moving average (EMA).

EUR/USD is steadily approaching the descending boundary of the symmetrical triangle pattern formed on a daily time frame, which is traced from the December 28 high around 1.1140. The ascending edge of the triangle is marked from the October 3 low at 1.0448. The formation of the symmetrical triangle shows a sharp contraction in volatility.

The 14-period RSI is oscillating within the range of 40.00-60.00, suggesting indecision among market participants.