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EUR/USD Daily Chart Analysis

EUR/USD Faces Increased Downside Risks Amid U.S. CPI, Fed Meeting

On Thursday, EUR/USD rebounded from its earlier lows, nearing flat for the day as softer-than-expected U.S. economic data fueled expectations of a more lenient Federal Reserve policy. The currency pair recovered after U.S. weekly jobless claims hit a 10-month high, with continuing claims rising to 1.82 million, surpassing the forecasted 1.798 million and the previous 1.79 million. Moreover, May’s producer prices fell more than anticipated, reinforcing the belief that disinflation might be returning—a view that was reignited by softer CPI data earlier in the week. These developments have cast doubt on the Fed’s recent SEP projection, which suggested a single rate cut in 2024, as short-term rate markets now price in a total of 50 basis points of easing for the year. If disinflation and weaker job growth persist, U.S. yields could decline, narrowing the German-U.S. yield spread and potentially boosting EUR/USD.

CFTC data indicates that investors remain net-long on the euro, though current positions are not as elevated as in 2020 and 2023. Those considering long positions in EUR/USD might need to act swiftly if weakening U.S. data forces the Fed towards a more dovish stance, potentially prompting a rush among investors to increase their euro holdings.

From a technical standpoint, EUR/USD showed resilience, rallying in the New York session after opening near 1.0795, having reached 1.0816 overnight. However, the rally faced resistance as U.S. yields and the dollar dropped following the PPI and jobless claims reports, reaching 1.0815 before sellers drove the pair lower. The declines in EUR/JPY and the rise in USD/CNH, along with falls in stocks and gold, added pressure on EUR/USD, pushing it down to 1.0732 before a modest bounce, ending the day down by 0.65%.

The technical outlook remains bearish with EUR/USD trading below both the 55-day and 200-day moving averages, and the Relative Strength Index (RSI) continuing to decline. The inverted hammer candle seen in June’s monthly chart further reinforces bearish signals. Key upcoming U.S. economic indicators, such as May export/import prices and the University of Michigan’s June sentiment index, will be crucial in determining the pair’s next move.

Market Sentiment and Future Outlook

Market sentiment remains cautious as investors assess the implications of recent U.S. economic data. The soft jobless claims and PPI reports have already influenced market expectations for Fed policy, leaning towards a more dovish outlook. This shift has the potential to lower U.S. yields and tighten the German-U.S. spread, which could support EUR/USD. However, technical indicators suggest bearish momentum, with the pair struggling to maintain gains above key moving averages and RSI showing downward pressure.

In summary, while softer U.S. economic data and dovish Fed expectations could provide upward support for EUR/USD, the technical outlook remains bearish. Investors should closely monitor upcoming economic data for further indications of market direction and potential shifts in Fed policy. This combination of fundamental and technical factors will be critical in determining the future trajectory of EUR/USD.