In Wednesday’s European session, EUR/USD has slipped below the critical support level of 1.0700, reflecting ongoing concerns over the Euro’s near-term prospects. Uncertainty surrounding European Union legislative elections and speculation about potential rate cuts by the European Central Bank (ECB) have weighed on the common currency.
The Euro faced intensified political uncertainty after French President Emmanuel Macron’s call for snap elections following preliminary defeats for his party against Marine Le Pen’s far-right National Rally (RN). This development has heightened concerns of policy shifts across the Eurozone, potentially adding pressure on the Euro.
Meanwhile, expectations of ECB rate cuts have strengthened amidst weakening economic indicators, particularly in Germany. Recent data, including the unexpectedly low German IFO Expectations index, underscores challenges in overcoming economic stagnation. IFO President Clemens Fuest remarked on the difficulty facing the German economy.
Investor focus remains on upcoming preliminary June inflation data for Spain, France, and Italy, scheduled for release on Friday, which could provide further insight into economic trends within the Eurozone.
Market Dynamics: EUR/USD Faces Pressure Amid Fed‘s Hawkish Stance
EUR/USD continues to experience downward pressure as risk-sensitive assets falter in response to the Federal Reserve’s (Fed) hawkish stance on interest rates. Fed policymakers have signaled a preference for maintaining current interest rates, awaiting sustained declines in inflation before considering rate cuts.
Fed Governor Michelle Bowman recently emphasized that the conditions for rate cuts are not yet met, delaying expectations to 2025 and warning of potential rate hikes if disinflation trends reverse. This contrasts sharply with market expectations, which anticipate two rate cuts by year-end, potentially starting in September pending economic data, including the core PCE Price Index for May.
Technical Analysis: EUR/USD shows a bearish outlook below the 50-day Exponential Moving Average (EMA) and near a Symmetrical Triangle’s downward border around 1.0750 in the daily chart. The Relative Strength Index (RSI) near 40.00 suggests potential for bearish momentum if it dips further.
In summary, EUR/USD faces significant challenges amidst political uncertainties in Europe and divergent monetary policy expectations between the ECB and the Fed, with technical indicators pointing towards continued bearish sentiment.
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