EUR/USD Price Forecast: Euro Struggles at 1.1700 as U.S. Economic Growth Surpasses Expectations
Original Article by John Morgan, TradingNews.com
The euro has faced significant resistance against the U.S. dollar, particularly around the 1.1700 level, amid stronger-than-expected economic data from the United States. The EUR/USD pair has remained under pressure as U.S. gross domestic product (GDP) growth exceeded 3.8%, reinforcing expectations for continued Federal Reserve tightening and casting a shadow over euro strength.
This article takes a closer look at the forces affecting the EUR/USD pair, highlighting key technical indicators, central bank policy directions, macroeconomic data, and potential market implications in the short to mid-term.
U.S. Economic Growth Outpaces Forecasts
The U.S. economy delivered a robust performance in the latest quarter with an annualized GDP growth rate exceeding 3.8%. The figure surpassed economist projections, leading to widespread positive sentiment surrounding the dollar.
This better-than-anticipated growth stems from several core contributors:
– Strong consumer spending across various sectors, including retail and services
– Renewed business investment and higher capital expenditure by American corporations
– Favorable export conditions driven by global demand for key U.S. goods
– Continued resilience in the labor market, reflected in low unemployment figures and rising job creation
These elements combined to support optimism in long-term U.S. economic prospects, strengthening expectations that the Federal Reserve could proceed with further monetary tightening.
Impact on Federal Reserve Policy Expectations
The surprising uptick in GDP growth has added momentum to hawkish sentiment surrounding the Federal Reserve. Investors now believe the central bank is well-positioned to continue its current trajectory of monetary policy tightening, increasing the likelihood of additional interest rate hikes in upcoming Federal Open Market Committee (FOMC) meetings.
Key factors enhancing this view include:
– Fed Chair Jerome Powell’s recent comments suggesting the central bank is committed to returning inflation to its 2% target over time
– Persistent consumer inflation, despite some cooling in headline CPI figures
– Signals from FOMC members indicating the need to maintain restrictive policy conditions longer than previously anticipated
As U.S. interest rates are expected to remain elevated or even rise further, investor sentiment has favored the dollar versus lower-yielding currencies like the euro.
Euro Zone Weakness and ECB Dilemmas
In contrast to the upbeat U.S. picture, the eurozone continues to face economic headwinds. Growth remains subdued in several member countries, and inflationary pressures are beginning to ease after a prolonged period of elevated consumer prices.
The European Central Bank (ECB) has signaled caution in its recent policy statements, highlighting uncertainties in the region’s economic outlook. Several key developments are dampening euro support:
– Sluggish industrial production and manufacturing data from Germany and France
– Ongoing concerns over energy security and utility pricing shocks
– Consumer sentiment remaining fragile in southern European economies
– A more dovish tone from ECB policymakers indicating a potential pause or slowdown in interest rate hikes
This divergence between ECB conservatism and Fed hawkishness has widened the yield differential between U.S. and eurozone government bonds. As a result, global capital appears to be shifting towards dollar-denominated assets, adding to the EUR/USD pair’s downward pressure.
Technical Outlook: EUR/USD at Pivotal Level
From a technical analysis perspective, the euro is facing major resistance at the 1.1700 level against the U.S. dollar. The currency pair has struggled to gain sustained momentum above this key psychological resistance zone.
Technical indicators suggest the following:
– 50-Day Moving Average (DMA): The EUR/USD remains below its 50-day moving average, indicating a bearish short-term trend
– Relative Strength Index (RSI): Hovering near the neutral 50-mark, suggesting a lack of clear directional momentum but with bearish undertones
– Fibonacci Retracement Levels: Traders are watching retracement levels from the May highs to
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