**EUR/USD Price Forecast: Buyers Take Charge as Market Sentiment Improves**
*Adapted from an analysis by Pablo Piovano, originally published on FXStreet*
The EUR/USD pair continued its upward trajectory on Wednesday, displaying strength above the 1.0850 handle. Recent economic data and broader market sentiment have supported the euro, while the US dollar has faced downward pressure. The bullish tilt comes amid signs of easing inflation, dovish interpretations of Federal Reserve comments, and speculative pricing around interest rate cuts in the United States. Collectively, these developments have tilted momentum in favor of buyers, with upside potential still in focus.
This article delves into the technical landscape, fundamental developments, macroeconomic context, and possible scenarios in the EUR/USD market, offering a comprehensive overview of what lies ahead.
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### Overview: Euro Strengthens as Dollar Weakens
The EUR/USD pair rose for the second consecutive session, reinforcing its position above 1.0850. The move coincided with improved investor sentiment and a broadly weaker US dollar. The greenback remained under pressure as market participants reconsidered the Federal Reserve’s future monetary policy path.
Key background points include:
– The US Dollar Index (DXY) retreated and failed to reclaim key resistance levels.
– Federal Reserve Chairman Jerome Powell offered dovish-leaning remarks during recent Congressional testimony.
– US Treasury yields softened, removing a layer of dollar support.
– Positive risk sentiment fueled equity markets, also adding downward pressure to safe-haven assets like the USD.
The overall mood in global markets has shifted to one where risk appetite is slowly recovering, giving the euro a relative advantage against the struggling dollar.
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### US Economic Data Keeps USD Under Pressure
Recent US economic indicators point toward cooling inflation and softer economic activity, encouraging speculation that the Federal Reserve may be done with its rate hikes and could begin cutting rates sooner rather than later. Markets are now pricing in the possibility of one or even two rate cuts by the end of 2024.
Important data releases that influenced this sentiment include:
– **CPI Inflation Data (June 2024):**
– Headline CPI registered lower than expected.
– Core CPI also showed a deceleration, suggesting that inflation pressures are abating.
– **Producer Price Index (PPI):**
– PPI came in weaker than anticipated, supporting the notion of reduced pipeline inflation.
– **Consumer Sentiment:**
– Preliminary University of Michigan Consumer Sentiment data was softer.
– Expectations for future inflation showed signs of improvement.
– **Labor Market Metrics:**
– Nonfarm Payrolls (NFP) reported slower job growth.
– Unemployment rate remained steady, but a decline in labor force participation raised caution.
In parallel, comments from Jerome Powell struck a balanced tone, but markets emphasized his acknowledgment that cooling inflation could warrant a policy shift. The dovish interpretation backed the view that the Fed may lower borrowing costs in the near term.
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### Eurozone Data Provides Modest Support
On the euro side, data has been moderately constructive, although not overwhelmingly strong. Inflation across the Eurozone remains below the European Central Bank’s (ECB) 2% target, but the region is showing some resilience in economic activity.
Key observations:
– **Eurozone Industrial Production (May 2024):**
– Expanded more than expected, giving a slight boost to the euro.
– **Services PMI:**
– Settled into expansionary territory, signaling underlying consumer demand.
– **ECB Forward Guidance:**
– Commentary from ECB officials has indicated that rate cuts may not be rushed.
– President Christine Lagarde has emphasized data dependence and patience.
– **Exchange Rate Impact:**
– A weaker euro risks importing inflation, possibly motivating the ECB to prevent excessive depreciation.
While ECB policy remains relatively balanced, the absence of aggressive dovish outlooks gives EUR a relative edge compared to the more dove-leaning Fed expectations.
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### Technical
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