The EUR/USD pair is struggling to hold above the critical 1.0700 support level as the market grapples with mixed signals from both the European Central Bank (ECB) and the Federal Reserve (Fed). While ECB Chief Economist Philip Lane emphasizes the need to maintain current interest rates, the Fed’s recent dovish comments regarding inflation have raised hopes of a potential rate cut.
ECB Cautious on Rate Cuts, Fed Signals Mixed Messages
The ECB remains hesitant to outline a clear path for interest rate cuts due to concerns about persistent wage growth and the potential for a resurgence of inflation. This caution contrasts with recent statements from Fed officials suggesting a more accommodative stance, fueled by softer-than-expected US inflation data.
Adding to the Euro’s woes, fears of a financial crisis in France due to the potential victory of the far-right National Rally party in upcoming elections are weighing on the currency’s appeal.
Market Drivers: Central Bank Policies and Economic Data in Focus
- ECB’s Stance on Inflation: ECB policymakers, like Martins Kazaks, are emphasizing the importance of bringing inflation back to the 2% target and maintaining vigilance against persistent wage pressures.
- Fed’s Mixed Signals: While recent US inflation data has been softer than expected, Fed officials like Austan Goolsbee remain cautious and are looking for consistent evidence of disinflation before considering rate cuts.
- US Retail Sales Data: Market participants are closely watching the upcoming US Retail Sales data for May, which could provide further insights into the strength of consumer spending and overall economic activity.
Technical Analysis: EUR/USD Struggles Below 200-day EMA
The EUR/USD pair has returned to a symmetrical triangle formation on the daily chart, facing resistance near 1.0750 and potential support around 1.0636 and 1.0600. The long-term outlook has turned negative, with the pair trading below the 200-day Exponential Moving Average (EMA). The Relative Strength Index (RSI) has also fallen below 40.00, suggesting potential for further bearish momentum.
