- Market sentiment is on the rise, predicting a boost for the euro.
- Concerns about the escalation of the Middle East conflict have lessened.
- The EUR/USD is maintaining its upward trend, now above 1.1500.
The EUR/USD pair lost some ground earlier in the week following Israel’s actions against Iran. However, it bounced back to over 1.1580—up from a low of 1.1490 on Friday—as the market evaluates the ongoing situation in the region.
Despite exchanges of fire between Israel and Iran over the weekend, the conflict has not spread to nearby countries, and Iran isn’t currently threatening to obstruct the Strait of Hormuz, which could pull the US into a broader conflict.
The US dollar (USD), typically a safe haven for investors, is currently losing traction again. The uncertainty surrounding tariffs and stalled trade negotiations between the US and its partners is adding pressure on the greenback as the July 9 deadline approaches.
Market participants are also eyeing the Federal Reserve’s monetary policy announcement set for this Wednesday. While no changes are expected, recent weaker economic data might prompt a shift in communication that could hint at potential interest rate cuts in September.
If that happens, we might see the US dollar continuing its long-term decline later in the week.
Daily Digest Market Mover: The Decline of the US Dollar Amid Fears of Wider Middle Eastern Conflict
- Tensions between Israel and Iran have persisted, but investors are relieved that the conflict hasn’t escalated further. Russia and Cyprus have offered to mediate, while US President Donald Trump has emphasized the need for a deal. As fear subsides, the USD has fallen from its peak on Friday.
- With concerns about the conflict easing, attention has shifted back to the uncertain global trade landscape. Reports from the weekend indicate that unresolved issues remain in US-China trade talks. The US has been unable to finalize key agreements with its trading partners as the July 9 deadline looms, putting further strain on the dollar.
- Today’s economic calendar is sparse for both the eurozone and the US. The main focus of the week will be the Fed’s monetary policy decision on Wednesday. Investors are particularly interested in remarks from Chair Jerome Powell that could indicate how recent weak macroeconomic data might influence central bank policies regarding rate cuts.
- According to data from CME Group’s Fed Watch Tool, the futures market sees stable interest rates in June and July, with a 66% likelihood of cuts in September.
- Joachim Nagel, the president of Germany’s Bundesbank and an ECB council member, took a balanced stance on Monday, suggesting that while banks shouldn’t rush into further rate cuts, the Monetary Policy Committee should remain adaptable given current uncertainties.
- Recent data revealed a 2.4% rise in eurozone industrial production for April, which has placed additional pressure on the euro (EUR).
- In the US, consumer sentiment improved, as indicated by the University of Michigan Consumer Sentiment Survey, which reached 60.5—the highest level in four months. Additionally, preliminary consumer inflation expectations fell from 6.6% in May to 5.1% in June.
Technical Analysis: EUR/USD Upholds Bullish Trends, Surpassing 1.1495
The EUR/USD faced rejection above 1.1600, pulling back to lower levels last Friday. Nevertheless, it remains above the previous resistance around 1.1500, keeping the overall bullish momentum intact.
Currently, the pair is trading at session highs, with the four-hour chart RSI showing positive momentum well above 50. Immediate resistance to watch is Friday’s high in the 1.1615-1.1630 range. Beyond that, a Fibonacci expansion level of 161.8% from May’s range at 1.1680 is on the radar.
On the downside, support is established around 1.1495, with the psychological 1.1500 level continuing to guide bullish sentiment. Should the price dip below, subsequent support is found in the 1.1460 area, reflecting closes from earlier in June. A breakdown here could raise concerns about the bullish outlook.
Euro FAQ
The euro serves as the currency for 19 countries within the eurozone and stands as the second-most traded currency globally, after the US dollar. It accounted for 31% of forex trading in 2022, with EUR/USD being the most frequently traded pair.
The European Central Bank (ECB), based in Frankfurt, oversees monetary policy and interest rates within the eurozone, aiming to maintain price stability through various measures, primarily through interest rate adjustments.
Inflation data in the eurozone, tracked by a harmonized index of consumer prices (HICP), influences ECB policy. If inflation surpasses expectations, higher interest rates may be warranted to control it, particularly if it exceeds the 2% target.
Economic indicators such as GDP, PMIs, employment figures, and consumer sentiment surveys help assess the eurozone’s economic health and affect the euro’s value. Strong economic performance attracts foreign investment and can lead to ECB interest rate hikes, strengthening the euro.
Trade balances also play a critical role; a favorable balance boosts the currency’s value, while a deficit can lead to depreciation.
