EUR/USD Price Analysis – July 01, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair extended its winning streak and gained further traction around the 1.0751 level, hitting an intraday high of 1.0776.
The upward rally can be attributed to a combination of factors, including a weaker US dollar, which lost traction following the release of softer United States (US) core Personal Consumption Expenditures Price Index (PCE) data for May.
This fueled expectations of early rate cuts by the Federal Reserve (Fed) and put pressure on the US dollar, contributing to gains in the EUR/USD pair.
Additionally, the stronger-than-expected performance of Marine Le Pen's RN in France's parliamentary elections was seen as another key factor that added upward pressure on the EUR/USD pair.
EUR Strengthens Amid Reduced Political Uncertainty in France
On the EUR front, the major currency pair is strengthening following the first round of France's parliamentary elections, where Marine Le Pen's far-right National Rally (RN) performed well, albeit with a narrower lead than expected.
The uncertainty surrounding RN's chances of securing an outright majority has boosted the euro's attractiveness.
According to Carol Kong from the Commonwealth Bank of Australia, a less dominant showing by the far-right party could reduce fears of unsustainable fiscal measures, thereby boosting euro sentiment.
Meanwhile, investors are watching for signals from the European Central Bank (ECB) regarding further interest rate cuts. The ECB began easing rates in early June after maintaining a tight policy to counter pandemic-driven inflation pressures.
Looking ahead, investors eyes on the preliminary German Harmonized Index of Consumer Prices (HICP) data for June, releasing at 12:00 GMT.
Meanwhile, the economists anticipate a slower annual rise in HICP at 2.6% in the Eurozone's largest economy, down from 2.8% previously. The monthly Consumer Price Index (CPI) is expected to accelerate to 0.2% from May's 0.1%.
Therefore, the EUR/USD pair is likely strengthening due to reduced uncertainty from France's elections, where Marine Le Pen's RN performed strongly but with a narrower lead. This has boosted Euro sentiment amid expectations of potential ECB interest rate cuts.
Impact on EUR/USD Pair Amid US Dollar Correction and Rate Cut Expectations
On the US front, the broad-based US dollar edged lower following the expected decline in the US core Personal Consumption Expenditures Price Index (PCE) for May.
This reinforced expectations of early Federal Reserve (Fed) rate cuts and put pressure on USD. It should be noted that the core PCE inflation, a key Fed metric, eased to 2.6% from 2.8% previously.
Meanwhile, CME FedWatch indicates a 63.4% probability of rate cuts in September, with expectations now leaning towards two cuts this year, contrary to the Fed's initial projection of one.
However, the US Dollar Index (DXY) dipped near 105.40 as markets anticipate volatility from upcoming economic releases, starting with the ISM Manufacturing Purchasing Managers’ Index (PMI) for June, expected to show marginal improvement but continued contraction in factory activity below the 50.0 level.
Therefore, the EUR/USD pair is likely to strengthen as the US Dollar edged lower on expectations of early Fed rate cuts following softer core PCE inflation data, pushing the US Dollar Index (DXY) down to around 105.40 amid anticipated market volatility from upcoming economic releases.
EUR/USD - Technical Analysis
EUR/USD is trading at $1.07662, reflecting a robust increase of 0.42% on the 4-hour chart, indicating positive momentum. The pivot point for today stands at $1.0753, serving as a crucial benchmark for market direction.
Immediate resistance is observed at $1.0794, with subsequent resistance levels at $1.0817 and $1.0845, marking potential targets for continued bullish activity. On the downside, immediate support is positioned at $1.0726, followed by deeper support levels at $1.0693 and $1.0668, providing potential stops for a bearish reversal.
The Relative Strength Index (RSI) is currently at 68, suggesting that the currency pair is nearing overbought conditions, yet still supports a bullish sentiment. The 50-day Exponential Moving Average (EMA) at $1.0714 further supports the current price action, indicating that the short-term trend remains upward.
Traders should consider entering long positions above the pivot point of $1.07529, targeting a take profit level at $1.07927. A stop loss at $1.07266 is advisable to manage downside risks effectively.
The alignment of technical indicators, including the elevated RSI and the supportive 50-day EMA, points to a bullish outlook for EUR/USD, provided it stays above the pivot point.
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