EUR/USD Holds Steady Above 1.0700 as Fed-ECB Policy Divergence Takes Center Stage
ECB Cautious, Fed Dovish: Policy Divergence Widens
The ECB remains hesitant to commit to a specific interest rate cut trajectory, citing concerns about stubborn inflation in the services sector. Conversely, softer US data has raised hopes of an earlier Fed policy pivot, with market expectations increasingly favoring rate cuts as early as September.
Adding to the Euro's challenges, political uncertainty in France following the recent elections casts a shadow over the currency's outlook.
Market Drivers: Interest Rate Expectations and Economic Data
- ECB's Stance on Inflation: ECB policymakers are stressing the need for sustained disinflation before considering further rate cuts, particularly in the services sector.
- Fed's Rate Cut Projections: Market participants are closely watching the divergence between the Fed's projected one rate cut this year and market expectations of multiple cuts.
- Weak US Retail Sales: The disappointing retail sales data has fueled speculation of earlier Fed easing, putting pressure on the US Dollar.
- French Political Landscape: The possibility of a far-right government in France adds another layer of uncertainty to the Euro's outlook.
Technical Analysis: EUR/USD Faces Key Resistance at 1.0750
The EUR/USD pair is currently trading near the 1.0750 resistance level, which coincides with the downward-sloping trendline of a symmetrical triangle pattern. The 200-day Exponential Moving Average (EMA) at 1.0800 remains a significant barrier for further upside.
Support levels to watch include 1.0636 and 1.0600. However, a sustained break below these levels could trigger further downside momentum.