The EUR/USD pair continued its upward momentum on Tuesday, reaching 1.0740 during the European session. This rally was fueled by a positive risk appetite in the market, driven by growing expectations of Federal Reserve (Fed) interest rate cuts. However, despite the bullish sentiment, concerns about the Eurozone’s economic outlook remain.
Market Drivers: Optimism and Uncertainty
- Risk-On Sentiment: Positive market sentiment and expectations of Fed rate cuts have supported the EUR/USD pair’s recent gains.
- Weaker US Dollar: The US Dollar Index (DXY) retreated to 105.40 as demand for safe-haven assets decreased.
- Gloomy German Outlook: Despite the overall positive market mood, German IFO data revealed a weakening economic outlook, with business climate and expectations indices both falling short of forecasts.
- Eurozone PMI Data: Last week’s preliminary HCOB PMI data also pointed to slowing economic activity in the Eurozone, raising concerns about the region’s growth trajectory.
ECB’s Rate Cut Dilemma and French Political Uncertainty
The European Central Bank (ECB) is grappling with the delicate balance between curbing inflation and supporting economic growth. While recent data suggests a potential for further rate cuts, the ECB remains cautious due to the risk of reigniting inflation.
Meanwhile, political uncertainty in France following the recent elections adds another layer of complexity to the Euro’s outlook.
Technical Analysis: EUR/USD Faces Resistance at Triangle Pattern
The EUR/USD pair is facing resistance near the downward-sloping border of a symmetrical triangle pattern on the daily chart, around 1.0750. The pair is currently trading below its 50-day Exponential Moving Average (EMA), suggesting a bearish bias in the short term.
The 14-day Relative Strength Index (RSI) is hovering near 40.00, and a break below this level could trigger further downside momentum.
Key Takeaways:
- The EUR/USD pair is benefiting from a positive risk-on sentiment and Fed rate cut expectations.
- Concerns about the Eurozone’s economic outlook and political uncertainty in France are tempering the Euro’s gains.
- Technical analysis suggests a potential for further upside if the pair can break above the resistance level at 1.0750.