EUR/USD Exposed to its 2024 Lows, Weighed By Policy Dynamics

  • EURUSD
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EUR/USD Analysis

The European Central Bank ended its tightening cycle this month, as it became the first major central bank to slash rates, in a watershed decision [1]. On the other hand, its US counterpart remains reluctant to pivot, due to persistent inflation, strong economy and robust labor market. Officials now expect just one rate cut this year (from three previously), also raising their inflation forecasts for 2024 and 2025. [2]

The monetary policy differential continues to weigh on EUR/USD, while political uncertainty poses another headwind, after the EU vote outcome and subsequent snap election announcement in France. The common currency runs another losing month and is exposed to the 2024 lows (1.0600). A breach would bring 1.0447 in the spotlight, but that seems distant for now.

Despite the ECB's historic pivot, policymakers adopted a cautious stance around further cuts, as recent inflation and wage data have shown persistence. The divergence with the Fed is likely to exacerbate their apprehension. The US central bank still expects to begin lowering rates this year and markets are more dovish, pricing in two cuts to start in September.

Furthermore, the decline looks stretched technically, so EUR/USD could find some reprieve, but the upside looks unfriendly. It will need strong catalyst though to reclaim the EMA200 and pause the bearish momentum.

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Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 17 Jun 2024 https://www.ecb.europa.eu/press/press_conference/monetary-policy-statement/shared/pdf/ecb.ds240606~f4d2c4833d.en.pdf

2

Retrieved 15 Jul 2024 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20240612.htm

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