EUR/USD Price Analysis – July 03, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair continued its mild bullish trend and remained well bid around the 1.0761 level, hitting an intraday high of 1.0764.
The mild upward trend was attributed to renewed selling pressure in the US dollar, which lost some of its gains on the back of mounting expectations of upcoming rate cuts by the Federal Reserve in both September and December. These expectations were bolstered by Federal Reserve Chair Jerome Powell's recent dovish remarks.
Impact of Eurozone Inflation and ECB Policy Uncertainty on EUR/USD Pair
On the EUR front, Eurozone headline inflation eased to 2.5% in June from 2.6% in May, while core inflation held steady at 2.9%, slightly above expectations of 2.8%. These figures indicate ongoing uncertainty over future price trends, complicating the European Central Bank's (ECB) interest rate stance.
ECB President Christine Lagarde noted positive inflation trends at the ECB Forum on Central Banking, suggesting progress in disinflation efforts.
Meanwhile, ECB policymaker Gabriel Makhlouf supports one potential rate cut this year but disagrees with market expectations for two cuts, leaving room for further monetary policy uncertainty. In political news, EU's second-largest nation saw strategic candidate withdrawals ahead of parliamentary elections aimed at countering far-right gains.
Therefore, the mixed inflation data and ECB's uncertain rate outlook could lead to volatility for the EUR/USD pair, influenced by market perceptions of Eurozone economic stability and ECB policy direction amid political developments in the EU.
Impact of Weakening US Dollar and Fed Expectations on EUR/USD Pair
On the US front, the weakening US dollar, despite strong labor market data exceeding forecasts, has heightened expectations for a Federal Reserve rate cut in September. This economic resilience suggests a potential easing of monetary policy.
Fed Chair Jerome Powell, while noting progress in inflation, remains cautious, emphasizing the need for sustained inflation trends toward the 2% target before considering rate adjustments. Additionally, JOLT job openings unexpectedly rose, indicating a robust labor market that could boost consumer spending and inflation concerns.
These dynamics create a complex backdrop for the EUR/USD pair, potentially supporting its strength against a softer dollar.
Therefore, the weakening US dollar amid anticipated Fed rate cuts could bolster the EUR/USD pair, supported by market expectations of softer monetary policy in the US and potential economic resilience in the Eurozone.
EUR/USD - Technical Analysis
The EUR/USD pair is showing signs of modest strength, trading at $1.07576, a 0.11% increase on the day. This movement is underpinned by a bullish sentiment as the pair inches closer to its pivot point at $1.0793.
The immediate resistance level stands at $1.0794, followed by further resistance at $1.0817 and $1.0845. On the downside, immediate support is found at $1.0726, with subsequent supports at $1.0693 and $1.0668. These levels are crucial as they indicate potential areas of consolidation or reversal.
Technical indicators paint a supportive picture for the euro. The Relative Strength Index (RSI) is currently at 60, suggesting the pair has room to advance further before approaching overbought conditions.
The 50-day Exponential Moving Average (50 EMA) at $1.07160 serves as a significant support level, reinforcing the bullish bias as long as the price remains above this moving average. This alignment of technical factors suggests a favorable environment for further gains, provided key resistance levels are breached.
The EUR/USD's recent price action reflects a broader sentiment of cautious optimism among investors.
As economic data and central bank communications continue to shape market expectations, the pair's ability to sustain above its pivot point and 50 EMA will be closely watched. The RSI near 60 implies a balanced outlook, with the potential for further upside if resistance levels are surpassed
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