Euro Stumbles Amid EU Political Instability and Cautious ECB Outlook

: George Solotarov; 11 June 2024; Hits: 110

Euro Stumbles Amid EU Political Instability and Cautious ECB Outlook

The EUR/USD pair weakened on Tuesday, testing the 1.0730 support level, as the Euro's downward trajectory continued following French President Macron's surprise decision to dissolve parliament and call for snap elections. This move has raised concerns about political stability within the European Union.

Adding to the pressure on the Euro, European Central Bank (ECB) policymakers are adopting a cautious stance on interest rates. ECB President Christine Lagarde emphasized that the recent rate hike doesn't necessarily imply a continuous downward path, and that periods of holding rates steady are possible.

Market Drivers: EUR/USD Faces Headwinds

EU Political Uncertainty: Macron's decision to dissolve parliament following the far-right's strong showing in EU parliamentary elections has fueled concerns about political stability within the bloc.
Cautious ECB Outlook: ECB policymakers are expressing caution regarding the inflation trajectory, citing persistent wage growth as a potential obstacle to achieving the bank's target.
US CPI and Fed Policy: Market participants are keenly awaiting US Consumer Price Index (CPI) data and the Federal Reserve's (Fed) policy decision on Wednesday, which could provide further direction for the EUR/USD pair.

Technical Analysis: EUR/USD Extends Losses

The EUR/USD pair has now declined for three consecutive trading sessions, falling back within a previously broken symmetrical triangle pattern. The pair is expected to find support near the 10.636 level, coinciding with the upward-sloping trendline of the pattern.

The longer-term outlook has also turned bearish, as prices have dropped below the 200-day Exponential Moving Average (EMA) at 1.0800. The Relative Strength Index (RSI) has fallen sharply to 40.00, and a decisive break below this level could trigger further downward momentum.