EUR/USD slides further amid increasing uncertainty after EU election results

EUR/USD stays on the back foot near 1.0730 as the European Union’s political uncertainty weakens the Euro’s appeal.
The ECB refuses to commit to a specific interest-rate trajectory.
The US Dollar’s appeal remains firm ahead of the Fed’s decision and the US CPI report.

EUR/USD shows weakness near the immediate support of 1.0730 in Tuesday’s American session. The major currency pair remains on the back foot as the Euro shifted into a bearish trajectory following French President Emmanuel Macron’s unprecedented decision to dissolve parliament and call for a snap election, which spooked political stability.

Macron’s decision to call for a snap election came after exit polls for EU parliamentary elections showed that seats won by Jordan Bardella-led-far-right National Rally came in at 32%-33%, more than twice the votes secured by Macron’s Centrist alliance.

European Central Bank (ECB) policymakers’ cautious approach to the interest rate outlook also fails to uplift the Euro. ECB policymakers worry that progress in inflation towards the bank’s target could stall as wage growth appears to be stubborn. On Monday, ECB President Christine Lagarde said in an interview that last week’s rate-cut move doesn’t commit to any linear declining path. “There might be periods where we hold rates again,” Lagarde said, according to Reuters.

Daily digest market movers: EUR/USD weakens further with focus on US CPI and Fed policy

EUR/USD declines to near 1.0730 as traders focus on the United States Consumer Price Index (CPI) data for May and the Federal Reserve’s (Fed) monetary policy decision on Wednesday. 
Annual core inflation, which strips off volatile food and energy prices, is estimated to have decelerated to 3.5% from April’s reading of 3.6%. In the same period, the headline inflation is expected to have grown steadily by 3.4%. While monthly headline inflation is forecasted to have grown at a slower pace of 0.1% from the former release of 0.3%, the core CPI is estimated to have maintained a steady growth rate of 0.3%. The US CPI report will indicate whether price pressures are on course to return to the desired rate of 2%. 
Meanwhile, the Fed is widely anticipated to keep interest rates steady in the range of 5.25%-5.50% for the seventh consecutive time. Therefore, investors will pay more attention to Fed Chair Jerome Powell’s press conference and the dot plot, which will indicate where policymakers see the federal fund rate heading. The CME FedWatch tool shows that 30-day Fed Fund Rate pricing data suggest only one rate-cut move this year, which could be announced either in the November or December meeting.
Fed policymakers said they want to be sure about sustained progress in the disinflation process before considering rate cuts. They have already warned that premature rate cuts could revamp price pressures again. Increasing chances that the Fed will maintain the current interest rate framework for a longer period has improved the US Dollar’s appeal. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds gains above the crucial support of 105.00.

EUR/USD Price Today:

Euro PRICE Today

The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Australian Dollar.

 
EUR
USD
GBP
JPY
CAD
AUD
NZD
CHF

EUR
 
-0.20%
-0.32%
-0.15%
-0.09%
-0.03%
-0.19%
-0.17%

USD
0.20%
 
-0.12%
0.05%
0.10%
0.14%
0.00%
0.01%

GBP
0.32%
0.12%
 
0.16%
0.22%
0.26%
0.11%
0.12%

JPY
0.15%
-0.05%
-0.16%
 
0.05%
0.08%
-0.07%
-0.05%

CAD
0.09%
-0.10%
-0.22%
-0.05%
 
0.05%
-0.11%
-0.10%

AUD
0.03%
-0.14%
-0.26%
-0.08%
-0.05%
 
-0.15%
-0.15%

NZD
0.19%
0.00%
-0.11%
0.07%
0.11%
0.15%
 
0.01%

CHF
0.17%
-0.01%
-0.12%
0.05%
0.10%
0.15%
-0.01%
 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

Technical Analysis: EUR/USD establishes below 200-DEMA

EUR/USD extends its losing streak for the third trading session on Tuesday. The major currency pair weakened after failing to hold the breakout of the Symmetrical Triangle formation, suggesting that the overall trend has turned bearish. The shared currency pair has now returned inside the triangle formation and is expected to find support at 10.636, near the upward-sloping order of the chart pattern plotted from 3 October 2023 low at 1.0448.

The long-term outlook of the shared currency pair has also turned negative as prices dropped below the 200-day Exponential Moving Average (EMA), which trades around 1.0800.

The 14-period Relative Strength Index (RSI) falls sharply to 40.00. A decisive break below this level would trigger bearish momentum.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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