**EUR/USD Holds Below 1.1850 Amid Hawkish Fed Sentiment**
*By FXStreet (adapted and expanded)*
The euro continues to face downward pressure against the US dollar, particularly as the EUR/USD pair remains beneath the 1.1850 mark. Recent developments in global monetary policy, especially from the United States, have played a key role in shaping market sentiment and trader expectations surrounding the currency pair.
Several factors are working in tandem to keep the EUR/USD depressed. The Federal Reserve’s recent policy stance has significantly shifted expectations around the timing and scale of potential interest rate hikes. Meanwhile, investors are responding to economic data releases from both the United States and the Eurozone, which provide additional clarity on the evolving inflation and economic growth outlooks.
This comprehensive breakdown explores why EUR/USD is struggling to gain traction, what the Fed’s current policy signals mean for forex markets, and what technical levels traders should keep an eye on as the week unfolds.
## Fed’s Hawkish Tone Dominates Market Sentiment
Markets were markedly influenced by recent comments and projections from the US Federal Reserve. These projections indicate a more hawkish shift in policy stance than many traders had initially expected.
– Fed policymakers have suggested two rate hikes could occur by the end of 2023, marking a departure from previous indications that rates would remain unchanged for a longer period.
– While the Federal Open Market Committee (FOMC) kept the federal funds rate between 0.00 percent and 0.25 percent during its latest meeting, the shift in the so-called “dot plot” reveals a growing consensus among Fed members for tightening policy sooner rather than later.
– The Fed’s upward revision of inflation expectations for 2021 and 2022 suggests that officials are preparing to counter inflation risks more proactively.
The hawkish tone from the Fed has strengthened the US dollar across the board. Since the USD is viewed as a safer haven and generally gains strength when interest rates rise or are expected to rise, the signal that the Fed could begin tapering sooner than expected supported the dollar against most major currencies, including the euro.
## US Treasury Yields and Dollar Strength
Alongside the Fed’s shift, US Treasury yields have also reacted in support of the greenback, creating further headwinds for the euro.
– The 10-year US Treasury yield rebounded above 1.5 percent after dropping earlier in June following a series of softer inflation readings.
– A rise in Treasury yields typically boosts the dollar, as yields represent a return on investment in USD-denominated assets, drawing investors toward the US markets.
– As rate hike expectations become increasingly priced into bond markets, the dollar benefits from a corresponding rise in demand.
This bullish sentiment surrounding the dollar is reflected in investor positioning. Market data show that speculative traders have increased their long positions on the dollar while cutting exposure to the euro, contributing to further downward pressure on the EUR/USD currency pair.
## EUR/USD Technical Overview
Technically speaking, the EUR/USD pair remains under significant pressure. After a rejection at the 1.1850 level, the pair has consistently traded below major psychological and technical resistance points, lacking the momentum required to stage a sustainable rally.
Key technical observations:
– Initial resistance stands at 1.1850, with stronger resistance at 1.1890 and then 1.1920.
– Support levels include 1.1800, followed by 1.1770 and then the year-to-date low of around 1.1704.
– Daily RSI (Relative Strength Index) remains in neutral territory but is leaning toward bearish momentum, suggesting further downside risks could materialize in the near term.
– The 100-day and 200-day moving averages are now pointing downwards, further reflecting weakening bullish strength in the pair.
Unless EUR/USD can break and hold above the 1.1850 resistance with strong volume and economic support, the technical outlook remains bearish with mounting possibilities of a run toward 1.
Read more on EUR/USD trading.