- The EUR/USD has dipped from 1.1830 as the US tax bill moves past the Senate and the Treasury experiences a rebound.
- Recent US data seems to back the Fed’s cautious approach. Powell remains undecided about a rate cut in July.
- ECB’s De Guindos indicated that EUR/USD exceeding 1.2000 could complicate matters. Economic data from the bloc is mixed.
The EUR/USD experienced minimal shifts on Tuesday during the North American session, after hitting a multi-year peak of 1.1830 and then slipping below 1.1800. The advancement of the shared currency has been somewhat stifled by President Trump’s ambitious tax proposal and the approval from the US Treasury.
Recently, the US Senate passed Trump’s tax reform with a narrow 51-50 vote, with Vice President JD Vance casting the deciding vote. This $3.3 trillion tax and spending plan is now moving to the U.S. House of Representatives, as reported by Bloomberg.
Current data indicates that the Federal Reserve’s moderate stance is valid, given the economic conditions in the US. The latest job openings and labor turnover survey (JOLTS) for May showed a higher number of job vacancies than initially expected. Concurrently, the Institute for Supply Management (ISM) manufacturing PMI improved but remains in contraction territory for a fourth consecutive month.
In the backdrop, Portuguese central bank officials are catching attention. Fed Chair Jerome Powell stuck to his usual commentary on the balance between observing economic conditions and tariff impacts, stating he can’t confirm if a rate cut in July is feasible.
European Central Bank (ECB) officials noted that inflation is lower and their rate outlook is tilted downwards. ECB Vice President Luis de Guindos remarked that if EUR/USD goes above 1.2000, it could be “complicated.” Other ECB members have supported a more cautious approach, opting not to adjust interest rates.
On the other side of the Atlantic, the Eurozone’s harmonized consumer price index (HICP) for June aligned with expectations and previous data from May. S&P Global also reported a slight improvement in manufacturing activity within the bloc, although concerns linger.
Market Update: Euro/USD Rally Stalls as Dollar Gains Ground
- The US Dollar Index (DXY), which gauges the dollar against six other currencies, increased by 0.02% to reach 96.80.
- The latest JOLTS report highlighted a rise in employment, with 7.769 million jobs recorded in May, exceeding expectations.
- June’s ISM manufacturing PMI climbed to 49.0 from May’s 48.5, beating expectations, but still indicates contraction for four months running.
- Fed Chair Powell stated that the current monetary policy remains “conservatively restrictive” and refrained from committing to a July rate cut, acknowledging it’s too early to make that call.
- ECB President Christine Lagarde remarked that goals have yet to be fully met, stressing the importance of staying vigilant regarding inflation.
- Data for the Eurozone’s HCOB production PMI in June was reported at 49.5, slightly higher than forecasts. The June HICP showed a 2% year-on-year increase.
- News of the EU agreeing to Trump’s tariffs pushed the EUR/USD higher, although the EU hopes for lower tariffs on crucial sectors like pharmaceuticals, alcohol, and semiconductors.
- A key US non-farm payroll report for June is likely to show a softening labor market, with estimates suggesting an addition of just 110,000 jobs, and an uptick in unemployment rates from 4.2% to 4.3%.
Outlook for EUR/USD: Potential Steadying Around 1.1800
The general trend for the EUR/USD pair suggests it may be preparing for a potential adjustment. The formation of a “doji” candle after recent highs hints at possible stabilization ahead, and the relative strength index (RSI) indicates ongoing bullish momentum.
If the EUR/USD clears the 1.1800 threshold, the next resistance might be the annual high of 1.1829, followed by 1.1850 and 1.1900. Conversely, if the pair drops below 1.1750, a decline to 1.1700 could occur, with significant support at lower levels of 1.1653 and 1.1600 from June 26.
