Euro Short-Term Outlook: EUR/USD Dips to Key Support Ahead of Federal Reserve Decision
By Fiona Cincotta, Originally Published on FOREX.com
The euro has experienced renewed downside pressure ahead of the highly anticipated Federal Reserve interest rate decision, with the EUR/USD currency pair falling close to crucial support levels. Amid growing expectations that the Fed may maintain its hawkish stance or delay rate cuts, the US dollar has gained strength. This shift in sentiment comes despite mixed signals from recent economic data, indicating that macroeconomic uncertainty remains high.
This article will analyze the short-term technical and fundamental factors influencing the euro-dollar pair. We’ll examine the role of key data releases, central bank policy divergence, and support/resistance zones to outline possible scenarios for the currency pair in the near term.
EUR/USD Technical Landscape: Key Support Levels Tested
The EUR/USD pair has declined sharply over the last few sessions, sliding towards a significant support zone around 1.0800. This downward movement suggests that bearish momentum has taken control as traders adjust expectations ahead of the US Federal Reserve’s rate decision.
Key technical highlights on the EUR/USD chart:
– The pair recently plunged below the ascending trendline that has been in place since mid-April, indicating a potential breakdown in bullish structure.
– EUR/USD tested the 1.0800 threshold, a vital support level that could determine whether further losses are in store or whether a solid bounce can materialize.
– RSI (Relative Strength Index) reading has slipped toward 30 on the daily chart, approaching oversold conditions. This suggests selling pressure may have been overextended, potentially setting the stage for a short-term rebound if macro conditions permit.
– The 100-day moving average, currently positioned near 1.0780, aligns closely with this support area, adding further technical significance.
Whether the pair can hold this zone or breach it will depend largely on upcoming macro events and central bank signals.
Macroeconomic Factors Pressuring the Euro
The euro’s performance has been lackluster recently due to various economic challenges facing the eurozone. Germany, the largest economy in the euro area, continues to struggle with weak industrial production and tepid consumer demand. At the same time, broader eurozone inflation metrics have begun to cool, adding pressure on the European Central Bank (ECB) to maintain or even increase its monetary policy support.
Key headwinds impacting the euro:
– Sluggish eurozone growth data, with several leading indicators pointing toward stagnation
– Declining inflation rates have reduced the urgency for further ECB rate hikes
– ECB officials have adopted a cautious tone, signaling the possibility of rate cuts later in the year
– Political uncertainty in countries such as France and Italy adds to investor caution
ECB’s Dovish Leanings and Divergence from the Fed
Divergence between the Federal Reserve and the ECB remains a major driver of euro-dollar price action. While the Fed continues to maintain a relatively hawkish posture due to lingering inflation risks in the United States, the ECB has already started shifting toward a dovish policy outlook.
Key points regarding central bank divergence:
– The ECB cut interest rates by 25 basis points in its June meeting, citing slowing inflation and declining real wages across the euro area.
– ECB President Christine Lagarde emphasized the need for a gradual and measured policy shift, signaling further easing could be forthcoming in the fourth quarter of 2025.
– By contrast, the Fed has left room to pivot to additional rate hikes or maintain current levels, depending on incoming inflation and labor market data.
This policy divergence has undercut the euro while supporting the dollar, encouraging capital flows back into dollar-denominated assets such as treasuries and major US equities.
Upcoming Federal Reserve Meeting: Dollar in Focus
All eyes are now on the upcoming Federal Reserve meeting. While no immediate rate change is expected, traders will scrutinize the Fed’s forward guidance for clues about the timing of possible rate cuts or adjustments to quantitative tightening programs.
Expectations going into the
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