**EUR/USD Forecast: Euro Teeters Near Critical Support as Dollar Gains Momentum**
*Original article authored by Pablo Piovano. This expanded version builds on the core analysis featured in the original FXStreet report.*
As of early July 2024, the EUR/USD currency pair continues to face intense downward pressure, hovering precariously close to important support levels. This follows a series of strong economic signals from the United States, alongside weakening macro indicators from the Eurozone. Combined with dovish expectations around European Central Bank (ECB) monetary policy and robust U.S. economic performance, the Euro finds itself under increasing threat of further depreciation.
Below is an expanded and comprehensive interpretation of Pablo Piovano’s original analysis, incorporating additional context and technical signals influencing the cross-currency market.
## Current Market Overview
– The EUR/USD has dropped to around the 1.0720 mark, its lowest levels since early May.
– This comes amid a resurgence in U.S. dollar demand, triggered by investors pricing in resilient economic data and recalibrating their expectations for Federal Reserve (Fed) interest rate cuts.
– Meanwhile, broader geopolitical and risk-off sentiment also feed into a preference for the safe-haven dollar, with higher U.S. Treasury yields adding to its attractiveness.
## Factors Driving EUR/USD Lower
### 1. Elevated U.S. Dollar Strength
– The U.S. Dollar Index (DXY), which measures the dollar against a basket of major currencies, remains firm above the 105.00 threshold.
– This dollar strength has been bolstered by:
– Persistent inflation that remains above the Fed’s 2 percent target.
– A solid labor market, with unemployment hovering near historical lows.
– Increasing skepticism around whether the Fed will deliver more than one rate cut in 2024.
### 2. U.S. Treasury Yields
– Bond yields continue to trend higher across various maturities, driven by:
– Hawkish comments from Fed policymakers, most of whom suggest caution in easing policy prematurely.
– Markets now expect any interest rate cuts to be minimal and delivered later in the year, likely around November or December.
– Higher bond yields reduce the relative attractiveness of low-yielding currencies such as the Euro.
### 3. Weak Eurozone Indicators
– Eurozone inflation remains subdued, providing little reason for the ECB to switch from its cautious policy stance.
– Additionally, the bloc’s weak GDP growth — coupled with muted consumer and industrial activity — raises recessionary concerns.
– Germany, the euro area’s largest economy, continues to struggle with stagnation in industrial production and exports.
– European Central Bank officials have hinted at sticking to a gradual rate path, keeping monetary policy largely accommodative.
### 4. Divergence in Central Bank Policy
– Markets are seeing more divergence between the expected policy paths of the ECB and the Fed:
– The Fed remains data-dependent but open to maintaining policy rates longer.
– The ECB appears to favor a dovish path amid low inflation projections.
– This divergence adds downside pressure to the Euro, as investors prefer higher yields linked to the U.S. financial markets.
## Technical Analysis: Key Levels to Watch
According to the original FXStreet article and further analysis:
### Immediate Support
– The pair is testing the May low at approximately 1.0710 to 1.0720.
– A clear break below this support zone could accelerate selling, opening the path toward:
– 1.0690: psychological round figure.
– 1.0635: the March swing low.
– 1.0600: a multi-month floor that, if breached, could signal deeper bearish momentum.
### Resistance Points
If EUR/USD attempts a rebound, the following levels will pose resistance:
– 1.0780 to 1.0800: previously strong supports now turned into resistance zones.
– 1.0850: a short-term resistance where prior buying interest was observed
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