EUR/USD continues to drift and is showing little movement on Tuesday. In the European session, EUR/USD is trading at 1.0630, up 0.21%.

German consumer confidence expected to remain low

In Germany, Ifo Business Confidence improved to its highest level in five months on Monday, showing a rebound in optimism across the manufacturing and service sectors. There was no repeat performance today from eurozone Consumer Confidence, which ticked up to -22.2, up from -23.9 and very close to the consensus of 22.0. More of the same is expected from Germany’s GfK Consumer Confidence, which will be released on Wednesday. The consensus stands at -38.0, following the previous reading of -40.2 points. Both indicators have been mired in negative territory, pointing to prolonged pessimism amongst eurozone and German consumers.

The gloomy mood is not surprising, given the difficult domestic conditions and uncertain global economic outlook. At home, inflation remains high and the ECB is promising more rate hikes, which will exacerbate the cost of living crisis. Abroad, the war in Ukraine and a slowdown in China are dampening global growth which is bad news for German and eurozone exports. Given this background, we’re unlikely to see a turnaround in consumer confidence anytime soon.

Over in the US, the Federal Reserve continues to spar with the markets, who are not listening to the Fed’s hawkish message and received a sharp reminder at the Fed meeting that the central bank plans to remain aggressive. Former New York Fed President William Dudley addressed this on Monday, warning that investors were ignoring the Fed at their peril, as the Fed would simply continue to tighten if it saw that conditions were becoming too loose. Even after the Fed meeting, the markets remain more dovish than the Fed about future rate policy. The Fed has projected a terminal rate of 5.00% to 5.25%, a view seconded by Goldman Sachs. However, the money markets have priced in a terminal rate of 4.88%.

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EUR/USD Technical

• EUR/USD is testing resistance at 1.0610. Above, there is resistance at 1.0714
• 1.0484 and 1.0380 are providing support