EUR/USD Forecast: A Drop to 1.0600 Cannot be Ruled Out

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The strong buying interest in the US Dollar (USD) led the USD Index (DXY) to consolidate Tuesday’s gains and advance to multi-week highs, surpassing the 106.00 barrier on Wednesday, exerting significant pressure on risk-sensitive assets and sending EUR/USD to new monthly lows near 1.0660.

Negative sentiment around the euro (EUR) persisted despite reduced political concerns in France ahead of the anticipated June 30 elections, while hawkish statements from the Fed and the widening monetary policy gap between the Fed and its major peers contributed to the downward move. Additionally, the macroeconomic scenario remained unchanged on both sides of the Atlantic, with the European Central Bank (ECB) still considering further rate cuts beyond the summer, while market bets suggested two more rate cuts by the end of the year.

In contrast, market participants continued to debate between one or two rate cuts by the Federal Reserve (Fed) this year, despite the Fed already forecasting only one cut, likely in December.

From the ECB, Finnish policymaker Olli Rehn predicted irregular inflation in the bloc, but this is expected, while data suggest that price growth will reach the 2% target. Additionally, Council member Fabio Panetta suggested that the ECB could gradually reduce interest rates as inflation decreases, while ECB Chief Economist Philip Lane projected continued rate cuts if price pressures ease, but they could slow in case of unexpected surprises.

EUR/USD Short-Term Technical Outlook

If the bears maintain control, EUR/USD could first revisit the June low of 1.0666 (June 26), then the May low of 1.0649 (May 1), and finally the 2024 low of 1.0601 (April 16).

Meanwhile, occasional episodes of strength could put the pair on track to revisit the 200-day SMA at 1.0789, before the weekly high of 1.0852 (June 12) and the June high of 1.0916 (June 4). Breaking this level reveals the March peak of 1.0981 (March 8), which precedes the weekly high of 1.0998 (January 11) and the psychological level of 1.1000.

So far, the 4-hour chart has revealed some signs of continued deterioration. Initial resistance is at 1.0746 followed by 1.0761 and 1.0802. Initial support is at 1.0666, before 1.0649 and 1.0601. The Relative Strength Index (RSI) rebounded to 39.