Title: EUR/USD Weakens and Consolidates After Decline: A Technical and Fundamental Analysis
Author: Alpari (Original article sourced from Alpari – alpari.com)
The EUR/USD currency pair has recently experienced a notable downturn, slipping to new monthly lows before entering a period of relative stability. This movement is driven by a blend of fundamental dynamics and technical indicators that suggest more volatility may lie ahead. In this detailed analysis, we will explore the factors contributing to the recent price action in the EUR/USD pair, assess potential support and resistance levels, and interpret what market participants might expect in the near term.
Overview of EUR/USD Price Action
– On June 12, 2024, the EUR/USD pair registered a decline, reaching a session low at the 1.0719 level.
– This recent downward pressure followed the release of stronger-than-expected U.S. inflation data, which reinforced investor expectations for prolonged hawkish monetary policy from the Federal Reserve.
– After dropping sharply, the pair entered a consolidation phase, hovering in a tight range between 1.0720 and 1.0745 by early European hours.
– The correction from the downtrend has been limited, suggesting that bearish sentiment still dominates in the short term.
Key Economic Events Influencing Price Movement
1. U.S. Consumer Price Index (CPI) Data
– The U.S. Bureau of Labor Statistics reported that headline CPI for May increased by 0.2% month-over-month, exceeding the forecast of 0.1%.
– This translates to a yearly inflation rate of 3.3%, slightly higher than the expected 3.2%.
– The core CPI, which strips out volatile food and energy prices, held steady at 0.3% month-over-month and 3.4% year-over-year.
– These inflation figures have diminished expectations for imminent rate cuts by the Federal Reserve.
2. FOMC Policy Statement and Dot Plot
– Following the inflation report, the Federal Reserve released its long-awaited FOMC statement.
– Policymakers left the federal funds rate unchanged in the target range of 5.25% to 5.50%, in line with market expectations.
– However, the updated dot plot revealed a more hawkish outlook among Fed officials, who now anticipate only one rate cut in 2024, down from three cuts projected in March.
– The hawkish shift in rate expectations bolstered demand for the U.S. dollar and weighed on the euro.
3. European Central Bank (ECB) Policy Landscape
– In contrast to the Fed’s stance, the European Central Bank cut its key interest rates by 25 basis points earlier in the month.
– This diverging policy outlook has widened the yield gap between U.S. and European debt instruments.
– As a result, the euro has come under selling pressure due to lower eurozone yields compared to their U.S. counterparts.
– ECB policymakers have signaled a data-dependent approach to future rate decisions, leaving the door open for additional cuts if inflation trends lower.
Technical Analysis of EUR/USD
The EUR/USD pair’s current technical setup suggests that the path of least resistance remains to the downside in the short term. Here’s a breakdown of the key indicators and chart patterns influencing the outlook:
1. Support and Resistance Levels
– Immediate support is located at 1.0715, which is the recent session low. A firm break below this point may open the door to further losses towards the psychological level of 1.0700.
– Below that, additional support may be found at 1.0675, a level that previously acted as a floor in April.
– On the upside, near-term resistance is seen at 1.0745, followed by stronger resistance at 1.0780.
– A break above 1.0780 could negate the current bearish bias and pave the way for
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