The EUR/USD pair declined on Tuesday as market sentiment turned negative due to US data that favored the Greenback. This led to a fresh bout of risk-off safe haven bidding, pushing the pair lower by around a quarter of a percent. Hopes for Federal Reserve (Fed) rate cuts in September were pushed back to November after the data failed to show signs of a steepening economic slowdown in the US.
According to the CME’s FedWatch Tool, rate markets are still expecting at least a quarter-point rate cut at the Fed’s September meeting. However, the odds are now in favor of a rate cut in November, with a 90% probability of a 25-basis point decline in Fed reference rates expected on November 7. The European Central Bank (ECB) is also expected to deliver a quarter-point cut in rates when they meet this week on Thursday.
With the rate differential between the EUR and USD expected to widen slightly, there could be further downside for the EUR/USD pair. This is especially true if Friday’s Non-Farm Payrolls (NFP) report shows a healthy US labor market, with expectations of 190K net new jobs added in May, higher than the previous month’s 175K. The technical outlook for the EUR/USD pair shows a decline from the 1.0900 level on Tuesday, slipping back into near-term congestion. The pair has been consolidating for most of the year, remaining down from its opening bids in 2024 near 1.1037.
The long-term technical floor for the EUR/USD pair is at the 200-day Exponential Moving Average (EMA) at 1.0797. Despite the recent declines, the pair is still up 2.65% from the year’s low in mid-April near 1.0600. Overall, the outlook for the EUR/USD pair is uncertain, with the ECB rate cut and US NFP report looming ahead as potential catalysts for further movement in the pair. Traders will be keeping a close eye on these events to gauge the direction of the EUR/USD pair in the coming days.
