- Summary:
- The EURUSD trading pair declined marginally on Tuesday, with French election jitters bubbling under as traders await PCE data release.
EURUSD traded flat on Tuesday, with the dollar bulls recovering some of the losses incurred on Monday. It traded at 1.0728 at the time of writing, marginally below the day’s opening price of 1.0732. The currency pair has maintained its action above 1.0700, a key psychological support level for building traction for further gains. That said, the euro’s main challenge comes from France’s forthcoming elections, which has put investors on edge as it becomes likely that leftists could pull significant wins.
Besides the political pressures, the Eurozone’s economy also slowed down significantly in June, with both the Services and Manufacturing PMIs missing the targets. However, the euro’s downside is limited by expectations that the Federal Reserve could have as many as two interest rate cuts in 2024, with the first one likely to come in September. Meanwhile, the ECB cut interest rates by 25 basis points in June, but inflation remains above its preferred mark of 2.0 percent. A key challenge in the Eurozone is the high cost of labour, which will likely provide fuel for inflation in the near term.
The ECB has indicated its reluctance to cut interest rates until inflation subsides further, and that could provide support for EURUSD as attention shifts to the Fed. Looking ahead, investors will have their ears on FOMC member Michelle Bowman for insights on potential shifts in Fed policy. However, the biggest news of the week will be the Personal Consumption Expenditure (PCE), which will guide Fed inflation policy. Also, some investors could reposition themselves for the release of New Home Sales data on Wednesday.
Technical analysis
The momentum on EURUSD favours the sellers to remain in control if resistance persists at 1.0724. That could see the first support established at 1.0717, below which the downside action could extend to test the next support at 1.0708. Alternatively, if the price action goes above 1.0724, it will favour the buyers to take control, with the first resistance likely to be at 1.0732. Extended control by the buyers at that point will break the resistance, and will invalidate the downside narrative. Also, it could propel further gains to test 1.0739.
