EUR/USD Hits Weekly High Amid USD Weakness and ECB Uncertainty

EUR/USD reached a new weekly high of 1.0880 during Tuesday’s European session. The major currency pair's strength can be attributed to a softening US Dollar (USD) and increasing uncertainty surrounding the European Central Bank's (ECB) future rate cut decisions following the June meeting.

The robust economic outlook for the United States and hawkish guidance from policymakers on interest rates have led traders to adjust their rate expectations. Market speculation on potential Federal Reserve rate cuts will be particularly influenced by the core Personal Consumption Expenditure (PCE) price index data for April, scheduled for release on Friday. The core PCE inflation data, the Fed’s preferred inflation measure, is anticipated to have remained steady on both a monthly and annual basis. This data will be crucial in shaping market expectations for the Fed's monetary policy trajectory.

From a technical perspective, EUR/USD’s recent price action aligns with our previous forecasts. The currency pair opened Tuesday with a bearish candle at the 78.6% Fibonacci retracement level from the previous swing high. This technical indicator suggests that the pair may be poised for a bearish reversal, potentially leading to a price retracement.

The market is also closely watching for signals from ECB policymakers regarding the future path of interest rates. The uncertainty over how aggressively the ECB will reduce key borrowing rates after the June meeting adds an additional layer of complexity to the EUR/USD outlook. ECB officials have recently expressed mixed views on the timing and scale of future rate cuts, which has contributed to the pair's volatility.

Furthermore, traders will be monitoring other significant economic indicators this week. In addition to the core PCE data from the US, the market will pay attention to any comments from Federal Reserve officials, as their statements could provide further insights into the Fed's policy stance. The US economic data and Fed communications will be key drivers of USD movement, impacting EUR/USD dynamics.

Overall, while EUR/USD has shown strength recently, driven by a weaker USD and ECB-related uncertainties, the technical outlook suggests caution. The bearish candle at the 78.6% Fibonacci level signals the potential for a bearish reversal. Market participants will need to closely watch upcoming economic data releases and central bank communications to gauge the likely direction of EUR/USD in the near term.

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