The EUR/USD pair stabilized above the 1.0800 support level during Monday’s European session. The major currency pair remained strong as the US Dollar faced pressure due to growing speculation that the Federal Reserve might lower interest rates at the September meeting.
The US Dollar Index (DXY), which measures the Greenback against six major currencies, hovered near a three-week low around 104.85.
Fed Rate Cut Expectations
Market expectations for a Fed rate cut in September have risen amid signs of a weakening US labor market. The June US Nonfarm Payrolls (NFP) report indicated a slowdown in labor demand, with revised estimates showing 110,000 fewer jobs in April and May than initially reported. Additionally, the unemployment rate unexpectedly increased to 4.1%, up from the previous 4.0%.
Wage growth momentum also slowed in June, as evidenced by the US NFP report showing a decline in Average Hourly Earnings on both a monthly and annual basis. This easing of inflationary pressures bolsters the case for early Fed rate cuts. According to the CME FedWatch tool, the probability of a September rate cut has increased to 75.8% from 64% a week ago.
Investors are now turning their attention to the US Consumer Price Index (CPI) report for June, set to be released on Thursday. This report will be crucial for assessing whether the disinflation process, which paused in the first quarter, has resumed.
EUR/USD Stability Amid Eurozone Uncertainty
Despite uncertainty surrounding the Euro’s outlook, EUR/USD has maintained its gains. Exit polls in France suggest that a coalition government will form, with the left-wing New Popular Front, led by Jean-Luc Mélenchon, unexpectedly gaining the upper hand. President Emmanuel Macron’s centrist alliance and Marine Le Pen’s far-right National Rally were the runners-up.
The lack of a clear majority in France has created uncertainty over the country’s fiscal outlook. This situation could lead to intense negotiations within the Centralist Alliance to distribute new ministries and appoint a new Prime Minister. Jean-Luc Mélenchon has proposed that President Macron resign and that the left wing take over economic management.
On the monetary policy front, persistent inflation risks have tempered expectations of future rate cuts by the European Central Bank (ECB). ECB officials are scheduled to meet on July 18 to discuss interest rates. Preliminary data showed the Eurozone Harmonized Index of Consumer Prices (HICP) grew steadily by 2.9% year-on-year in June, with service inflation remaining sticky at 4.1%. ECB President Christine Lagarde emphasized the need to closely monitor services inflation.
Technical Analysis
EUR/USD has found firm footing above 1.0800. The currency pair has strengthened after stabilizing above the 20-day and 50-day Exponential Moving Averages (EMAs), which are around 1.0750 and 1.0770, respectively. The overall trend has also improved, with the pair trading above the 200-day EMA at 1.0800.
The daily Symmetrical Triangle formation indicates a sharp contraction in volatility, suggesting low trading volume and narrow price movements. The 14-day Relative Strength Index (RSI) has reached 60.00, and a break above this level could trigger further bullish momentum.
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