EUR/USD is falling as hopes for a Federal Reserve interest rate cut fade, and upcoming tariff decisions increase demand for the US Dollar. The pair is testing support around 1.7360, while the US Dollar gains strength due to rising expectations from the Federal Reserve. Market predictions now show only a 4.7% chance of a 25-basis-point rate cut in July, a drop from 20.7% last week. In September, the chance of a rate cut has decreased to 64.5% from 75.4%. Strong US Nonfarm Payroll figures are making rate cuts less likely.

Challenges For The Euro

The Euro is struggling against the Dollar, with yield differences favoring the US currency. Also, potential new US tariffs could heighten trade tensions, boosting the Dollar’s position. The EUR/USD pair is testing support near the 1.1700 level. If key levels break, there could be corrections. A recovery above 1.1800 might spark renewed interest, leading to further gains past recent highs. The Euro, used by 19 countries in the European Union, is the second most traded currency worldwide. Its value is influenced by interest rates from the European Central Bank, inflation data, economic indicators, and trade balances. The recent decline in the euro-dollar exchange rate is mainly due to changing expectations around US monetary policy. The US labor market, particularly strong Nonfarm Payroll numbers, suggests the Federal Reserve is unlikely to soften its stance soon. This outlook is now reflected in the market. Just a week ago, there was hope that rates would start to fall by July; now that belief has almost vanished. This change has important effects. With fewer rate cuts expected, yields in the US are more appealing than those in the euro area. This yield gap draws capital to dollar-denominated assets. When global investors seek higher returns, even small interest rate differences matter. This shift in sentiment enhances the demand for the dollar.

Investor Sentiment And Market Response

Additionally, the possibility of new tariffs from Washington is increasing the demand for safe assets. When trade policy tensions rise, investors often turn to more reliable assets. The US Dollar fulfills that role. As risk aversion increases, even temporarily, it puts downward pressure on euro-dollar valuations. For those focusing on foreign exchange derivatives, this shift means re-evaluating strategies. The pair is lingering near 1.1700, a level that has shown support in the past. It has attracted buyers during earlier sell-offs, giving it some technical stability. However, if it breaks lower, volatility may increase. There’s potential for further selling, especially if additional data or tariffs reinforce the current trend. However, it’s not all negative. If momentum shifts or buyers gain confidence, a recovery through 1.1800 should be watched closely. This would indicate that sellers are beginning to retreat—potentially weakening the dollar’s recent support—and could create new opportunities. If it surpasses a retracement level just above, it may reach previous highs around 1.1900 and possibly further. While the euro is influenced by decisions from the European Central Bank and macroeconomic data in the region, it currently lacks the strength to mount a strong recovery. If inflation in Europe rises sharply or if growth improves significantly, the situation could change. Without that, pressures remain skewed in one direction, making a sudden reversal unlikely. The US side still has the greater influence, as shown by the significant adjustments in expectations for the Federal Reserve. As narratives and data diverge in the upcoming days, we can find opportunities both above support and near resistance. However, this requires a carefully measured approach and quick responses to economic news. Create your live VT Markets account and start trading now.

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