Sun, June 16, 2024

EUR/USD Teeters at 1.0820 Amid Strong US Dollar

Euro (EUR)

Quick Look:

  • EUR/USD hovers near 1.0820, driven by stronger US dollars and higher yields.
  • The US Dollar gains from higher yields and a 62% probability of Federal Reserve rate cuts by September.
  • ECB may cut rates by June; President Lagarde is confident in managing inflation despite weak Eurozone fundamentals.

The EUR/USD currency pair hovers at 1.0820, teetering near multi-day lows. The US Dollar has recently gained momentum, driven by higher yields, which has extended its weekly recovery and kept the risk complex under heightened pressure. This development comes amid positive performances in US yields across various durations, further bolstering the Dollar’s strength.

US Dollar Gains Momentum with Yields, EUR/USD at 1.0820

The performance of the US Dollar has been notably robust, primarily due to increasing yields. This trend is underscored by a 62% probability of interest rate cuts by the Federal Reserve by September. Prominent Federal Reserve speakers, including Susan Collins, President of the Boston Federal Reserve, and Loretta Mester, President of the Federal Reserve Bank of Cleveland, have indicated that while they expect inflation to continue declining, the process will be gradual.

The minutes from the Federal Open Market Committee (FOMC) meeting on May 1 highlighted a significant debate about the current restrictiveness of monetary policy. The consensus suggests that the policy must remain “sufficiently restrictive” to curb inflation effectively.

62% Chance of Fed Rate Cuts by September Bolsters Dollar

In contrast, the European Central Bank (ECB) contemplates potential interest rate cuts as early as June. ECB President Christine Lagarde has expressed strong confidence in managing Eurozone inflation, citing a gradual resolution of the energy crisis and easing supply chain bottlenecks as key factors.

Despite these optimistic signals from the ECB, the Eurozone faces subdued economic fundamentals. This contrasts sharply with the resilient US economy, resulting in a policy divergence that increasingly favours a stronger Dollar over the Euro.

EUR/USD Faces Key Resistance at 1.0894, Support at 1.0787

The technical outlook for EUR/USD reveals several key resistance and support levels. Resistance is noted at 1.0894 (the May 16 high), 1.0981 (the March 8 peak), 1.0998 (the weekly high from January 11), and the critical barrier at 1.1000.

EUR/USD Weakness to Accelerate if Below 1.0790

The EUR/USD has been in a long position since mid-April, breaking through a downtrend line last week. This shift suggests a potential acceleration in weakness if the pair drops below the critical level of 1.0790. As traders navigate these dynamics, the interplay between US and Eurozone monetary policies and the evolving economic landscape will be pivotal in determining the trajectory of EUR/USD in the coming weeks.

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