EUR/USD Under Pressure as Key U.S. CPI and Fed Meeting Loom; Technicals Signal Further Downside
The EUR/USD pair faces increasing downside risks, reflecting a complex mix of technical and fundamental factors. The pair fell below the daily cloud base on Tuesday, reaching a 1.5-month low, driven by investor concerns over upcoming U.S. CPI data and the Federal Reserve's policy meeting. Additionally, snap elections in France and budget deficits have heightened investor uncertainty, widening the German-French yield spreads as investors seek safer assets. This safe-haven demand also widened German-Italian yield spreads and the German-U.S. spreads, enhancing the dollar's yield advantage over the euro.
Technically, the EUR/USD pierced the 61.8% Fibonacci retracement of the 1.0602-1.0916 rally and traded below several daily moving averages, with both daily and monthly RSI falling. The formation of inverted hammer candles in June further reinforces bearish signals. The pair's recent decline continued as the USD strengthened on safe-haven flows, driven by higher U.S. Treasury yields and a rally in USD/CNH, which pressured EUR/USD down to 1.07195. Although a brief rebound occurred as the USD softened, the pair remains bearish, hovering near 1.0740, down by 0.25%.
Market participants are focused on the U.S. May CPI and the Fed meeting, key events expected to drive volatility. The EUR/USD's technical outlook remains negative, with momentum studies sliding and the pair trading below the 55- and 200-day moving averages. The expansion of the 21-day Bollinger bands signals a negative trend setup, with critical support levels at 1.0719/21. A close below these levels would confirm further bearishness, while resistance levels at 1.0773 and 1.0799 represent potential hurdles for any short-term recovery.
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