Since the start of trading this week, the exchange rate of the euro currency pair against the dollar, EUR/USD, is in a narrow range with a downward tendency. This is in the absence of influential economic releases, and even statements by monetary policy officials of both the European Central Bank and the US Federal Reserve. This performance of the most famous currency pair in the forex market is between the level of 1.0732 and the level of 1.0667, and it settles around the level of 1.0695 at the time of writing the analysis.
The EURUSD exchange rate is on its way to test parity again according to analysis from Capital Economics. The independent research and advisory provider says that although most G10 currencies rose against the dollar in June, a number of factors still favor the greenback. In this regard, James Riley, associate economist at Capital Economics, says: “The dollar’s strength can be attributed to changes in yield gaps, as US yields generally rise more than those elsewhere, as investors re-adopt the “higher” story for a longer period.”
The shift in interest rate expectations favors the US dollar, mainly due to the relative resilience of US activity data compared to other major economies such as the Eurozone and China. Accordingly, Capital Economics maintains its view that growth in the US and other major economies will eventually disappoint, leading to safe-haven demand and a stronger dollar.
The analyst added, “We don’t think that the ‘soft landing’ will necessarily be negative for the dollar as well.”
However, the Euro also tends to underperform amid signs that inflation in the Euro-Zone has peaked. For his part, Jonas Goltermann, Vice President of Market Economist at Capital Economics, says: “Inflation data in the eurozone for May came in much lower than expected, which indicates that price pressures are finally starting to ease there.”
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Eurozone consumer price inflation eased to 6.1% in May, down from 7% in April, making it the lowest since February 2022 and below the 6.3% expected by economists in a Reuters poll. Inflation figures point to a possible decline in the strength of the euro, notes Capital Economics. Despite the possibility that the European Central Bank will continue to raise interest rates this summer, the analyst believes that the upside risks to interest rates in the eurozone have diminished due to the recent dynamics of inflation. He added, “While the European Central Bank still appears likely to proceed with raising interest rates at least once, and possibly twice, this summer, upside risks to interest rates in the eurozone have diminished. This makes us more comfortable with our prediction that the euro will fall back towards parity with the dollar later this year.”
- No change in my technical point of view, only the performance on the daily chart below.
- The general trend of the EUR/USD currency pair is still bearish.
- Attempts to reverse the trend are still weak and lack strong momentum.
- This will not happen without the EUR/USD moving towards the resistance levels of 1.0830
According to the current performance, the bears moved in the EUR/USD currency pair towards the support level of 1.0660. This will support the strength of the current trend and warn of a deeper bearish move, and at the same time move the technical indicators towards strong oversold levels. The Eurodollar currency pair does not await impressive US data today.
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