EUR/USD under pressure on caution ahead of FOMC Minutes

• EUR/USD faces selling pressure as investors focus on FOMC minutes.
• ECB policymakers are divided over whether the dovish trend will continue beyond the June meeting.
• Fed officials want inflation to ease for months before lowering interest rates.

The EUR/USD pair faces selling pressure and retreats to 1.0820 in the New York session on Wednesday. The major currency pair is trading cautiously pending the release of the Federal Open Market Committee (FOMC) minutes later in the day and preliminary data from the Eurozone and US Purchasing Managers' Index (PMI). United for May, which will be published on Thursday. The PMI data will provide clues on trends in demand, inflation and employment.

The Euro remains supported against the US Dollar as market participants doubt that the European Central Bank (ECB) will extend interest rate cuts beyond June. Some ECB policymakers, such as Bundesbank President Joachim Nagel, De Nederlandsche Bank President Klaas Knot, Bank of Belgium Governor Pierre Wunsch and Bank of Latvia Governor Martins Kazaks, believe that a rate cut in June is feasible, but a continuation could be premature.

Regarding the inflation outlook, the ECB's Nagel said: “There may be months when inflation picks up a little, as some prices tend to fluctuate, especially energy prices.” Nagel added: “Overall, I expect inflation to continue to decline towards our 2% target and reach it in 2025.”

Daily Market Summary: EUR/USD Faces Sell-Off as US Dollar Advances

• The EUR/USD pair falls to 1.0840 amid uncertainty over the Federal Reserve's (Fed) rate cut schedule. Fed officials support keeping interest rates at their current levels until they get evidence that inflation will sustainably return to the desired rate of 2%.
• The expected decline in the annual US Consumer Price Index (CPI) data for the month of April has failed to instill confidence among Fed officials in the continuity of the disinflation process. Given the strength of the US economy, policymakers fear that the slowdown in price pressure will not last.
• On Tuesday, Cleveland Fed President Loretta Mester stated that she wants to see good inflation data for months to feel comfortable supporting a step toward normalizing monetary policy. When asked for a concrete timetable for rate cuts, Atlanta Federal Reserve President Raphael Bostic said he doesn't expect them before the fourth quarter of this year. Regarding the inflation outlook, Bostic commented that business owners have experienced a decline in pricing power, but are confident in the economic outlook.
• Looking ahead, investors will focus on the FOMC minutes from the May meeting, which will be released at Wednesday's session in New York. The impact of the FOMC minutes is expected to be mild, as the Fed's interest rate decision-making was based on stubborn inflation data recorded in the January-March period.

Technical Analysis: EUR/USD falls to test triangle breakout zone near 1.0800

EUR/USD declines to 1.0840 as investors await the release of FOMC minutes. The major currency pair retreats towards the breakout region of the symmetrical triangle around 1.0810, formed on a daily time frame. The short-term outlook for the shared currency pair remains strong as the 20-day and 50-day exponential moving averages (EMA) have crossed to the upside around 1.0780.

The 14-period RSI has moved comfortably towards the bullish range of 60.00-80.00, suggesting that momentum has tilted to the upside.