The EUR/USD pair gained 0.50%, reaching a two-week high of 1.0770 in Monday’s European session. This surge follows the first round of France’s parliamentary elections, where Marine Le Pen’s far-right National Rally (RN) fell short of an absolute majority, easing concerns over expansionary fiscal policies. Carol Kong, a currency strategist at Commonwealth Bank of Australia, noted, “We might actually get less fears of more expansionary and unsustainable fiscal policy if the far-right party did a little bit worse.”
As investors anticipate the second-round runoffs on July 7, attention also shifts to potential rate cuts by the European Central Bank (ECB). The ECB began reducing interest rates in early June after two years of a restrictive stance aimed at controlling inflation from pandemic-led stimulus.
The major trigger for the Euro in Monday’s session will be the preliminary German Harmonized Index of Consumer Prices (HICP) data for June, expected at 12:00 GMT. Economists predict an annual HICP rise of 2.6%, down from 2.8%, while the monthly Consumer Price Index (CPI) is expected to increase by 0.2%, up from 0.1% in May. Lower-than-expected German inflation could boost expectations for early ECB rate cuts, while higher numbers may diminish those hopes.
Market Dynamics: EUR/USD Gains on US Dollar Weakness
The EUR/USD pair’s rise to 1.0770 coincides with a correction in the US Dollar following weaker-than-expected US core Personal Consumption Expenditures Price Index (PCE) data for May, which reinforced expectations for early rate cuts by the Federal Reserve (Fed). The core PCE inflation, the Fed’s preferred measure, decelerated to 2.6% from 2.8%. The CME FedWatch tool indicates a 63.4% probability for a rate cut in September, with two cuts expected this year compared to one projected in the latest dot plot.
The US Dollar Index (DXY), tracking the Greenback against six major currencies, fell to around 105.40. This week, the US Dollar is expected to remain volatile with several key economic data releases. Investors will focus on the ISM Manufacturing Purchasing Managers’ Index (PMI) report for June, due at 14:00 GMT. Economists anticipate an improvement to 49.0 from 48.7, although remaining below the 50.0 expansion threshold. The preliminary S&P Global PMI report on June 21 showed the US Manufacturing PMI rising to a three-month high of 51.7 from 51.3 in May.
Technical Analysis: EUR/USD Strengthens Within Symmetrical Triangle
The EUR/USD pair has rebounded after finding strong buying interest near the upward-sloping border of a Symmetrical Triangle formation on the daily timeframe, close to 1.0666. This support is marked from the October 3, 2023 low of 1.0448, with the downward-sloping border from the July 18, 2023 high of 1.1276. The Symmetrical Triangle indicates sharp volatility contraction, reflecting low volume and narrow price movements.
Despite the recent gains, the pair remains below the 200-day Exponential Moving Average (EMA) near 1.0790, suggesting an overall bearish trend. The 14-period Relative Strength Index (RSI) fluctuates between 40.00-60.00, indicating market indecisiveness.
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