The EUR/USD pair jumped to nearly 1.0740 in Tuesday’s New York session, buoyed by softer-than-expected US Retail Sales data for May. The figures, a key gauge of consumer spending, grew at a slower pace than anticipated, raising hopes that the Federal Reserve (Fed) might cut interest rates sooner than previously thought.
Softer US Data, Stronger Euro
The weaker Retail Sales report, coupled with recent cooling inflation figures, is fueling speculation that the Fed could potentially cut rates twice this year. This has put pressure on the US Dollar (USD) and boosted the Euro (EUR). However, the Euro remains vulnerable due to ongoing political turmoil in France, which continues to weigh on investor sentiment.
Fed’s Stance vs. Market Expectations
While the market is increasingly pricing in multiple rate cuts this year, Fed officials have consistently maintained their projection of only one rate cut. Despite acknowledging the recent progress in curbing inflation, policymakers remain cautious and want to see sustained evidence of disinflation before adjusting their stance.
Market Drivers: Retail Sales, Fed Rhetoric, and French Political Landscape
- US Retail Sales: The weaker-than-expected data has boosted hopes for Fed rate cuts, providing a tailwind for the Euro.
- Fed’s Communication: Investors are closely watching Fed officials’ rhetoric for any hints on the timing and magnitude of potential rate cuts.
- French Political Turmoil: The uncertainty surrounding the upcoming French elections and the potential for a far-right government is a key risk factor for the Euro.
Technical Analysis: EUR/USD Faces Key Resistance
The EUR/USD pair is struggling to break above the immediate resistance of 1.0740. The downward-sloping trendline of a symmetrical triangle formation on the daily chart, along with the 200-day Exponential Moving Average (EMA) at 1.0800, pose significant hurdles for further upside.
The pair could find support at 1.0636 and 1.0600. However, a sustained break below these levels could trigger further downside momentum.