EUR/USD is currently trading sideways above the 1.0700 support level as investors await further guidance on interest rates from both the Federal Reserve (Fed) and the European Central Bank (ECB). The ECB has expressed concerns over inflation in the services sector, prompting speculation about a second rate cut. On the other hand, investors anticipate the Fed to lower interest rates twice this year, with a 67% chance of a cut in September.
French political uncertainty has also had an impact on the Euro, with investors wary of the potential economic implications of a government led by Marine Le Pen’s National Rally party. With promises of lower retirement age and increased public spending, the manifesto of RN is causing concern in the EU’s second-largest economy.
In the US, the Dollar has been trading within a tight range as Retail Sales growth in May fell below expectations, leading to speculation about potential rate cuts by the Fed. The CME FedWatch tool indicates a higher likelihood of a rate cut in September, with expectations for another cut later in the year. However, Fed policymakers have emphasized the need for more positive inflation data before considering any rate adjustments.
In terms of technical analysis, EUR/USD is approaching the resistance level of 1.0750, with a downward-sloping trendline acting as a barrier for further upside movement. The currency pair may find support near 1.0636, with the long-term outlook turning negative as prices dip below the 200-day Exponential Moving Average. The Relative Strength Index (RSI) also suggests a potential shift towards bearish momentum.
The Federal Reserve plays a crucial role in shaping monetary policy in the US, with a focus on achieving price stability and fostering full employment. Interest rate adjustments are the primary tool used by the Fed to meet these objectives, influencing the strength of the US Dollar. In times of economic crises, the Fed may resort to unconventional measures such as Quantitative Easing (QE) to increase credit flow in the financial system.
Looking ahead, investors will continue to monitor developments in the US and Eurozone economies, particularly any signals from the Fed and ECB regarding interest rate policies. With ongoing uncertainties surrounding inflation and political factors, the outlook for EUR/USD remains uncertain. Traders should be prepared for potential volatility in the currency pair as market conditions evolve.