EUR/USD hits multi-year highs as dollar weakens

Euro gains on U.S. dollar weakness

The EUR/USD surged to multi-year highs, primarily supported by a weakening U.S. dollar. The greenback came under pressure as geopolitical tensions in the Middle East eased and market sentiment improved.

Additionally, investors started to price in a potential third rate cut by the Federal Reserve. This sentiment was reinforced by recent remarks from two Federal Open Market Committee members indicating they may support a rate cut at the July meeting.

Adding to dollar weakness was political noise out of Washington. U.S. President Trump expressed dissatisfaction with the Federal Reserve Chairman’s current monetary policy stance and indirectly called for his resignation. He also announced he had chosen a preferred candidate to nominate as Fed Chair once Jerome Powell’s term ends in May of next year.

What’s next for EUR/USD?

Markets are now turning their focus into key political and economic developments:
U.S. Tax Reform Bill: Debate continues in the Senate over the proposed tax cut legislation, following its approval in the House of Representatives. However, internal Republican disagreements (driven in part by electoral considerations) may delay final passage until after July 4.

Investors will follow today the June ISM Manufacturing PMI from the U.S. and preliminary Eurozone inflation data for June. A stronger-than-expected U.S. PMI (above the 48.8 forecast) could lend some temporary support to the U.S. dollar.

On the European side, weaker-than-expected CPI data (below 2.0%) could ease the European Central Bank cut rates in September, weighing on the euro. Conversely, hotter inflation readings might prompt the ECB to delay further easing, providing renewed support for the euro.

Markets are also awaiting comments from Fed Chair Powell and ECB President Lagarde during the upcoming Sintra central banking forum, which could offer fresh insights into the future of monetary policy on both sides of the Atlantic.

EUR/USD technical outlook: the pair may rally to the 1.2000- handle

Since rebounding off the 50-day average on May 12, EUR/USD has formed a clear uptrend, characterized by higher highs and higher lows. Today, the pair broke above the 1.1800 level for the first time since September 2021, signaling strong bullish momentum. The pair now appears poised to test the upper boundary of its current trading range between 1.1715 and 1.2000.

However, the Relative Strength Index (RSI) is currently at 73, indicating overbought conditions. A dip below the 70 level may signal that bullish momentum is fading, potentially triggering a near-term correction.

Key levels to watch in the bearish scenario

A daily close below 1.1715 would suggest weakening bullish momentum and could lead to a pullback toward 1.1510. In this case, support at 1.1664 should be closely monitored.

A further daily close below 1.1510 could confirm a shift in trend and encourage further downside towards 1.1176. That said, support levels at 1.1465 and 1.1344 should be monitored.

EUR/USD Daily Price Chart

Chart Source: ADSS Platform