FX.co ★ EUR/USD: euro gears up for victory as dollar idles

The US dollar has been struggling against the euro, which has hit new highs bver the past few days. However, USD remains hopeful of a rebound, occasionally spiraling upward, but struggling to find firm footing. Meanwhile, the euro seeks to move higher and maintain its lead for as long as possible.

The euro received significant support from the European Central Bank (ECB)'s decision to hike its key rate by 25 basis points, which sent lending rates to 4%, the highest level since 2008. Remarks by ECB president Christine Lagarde were more substantial than statements by Fed chairman Jerome Powell. Lagarde signaled a few more hikes are on the cards when speaking about short-term monetary policy.

In addition, ECB representatives are inclined towards further rate hikes at the next meeting. Such statements from Lagarde sharply contrast with the stance of the Federal Reserve. It should be noted that Powell stated that another rate hike in July was possible but did not rule out the possibility of reconsidering the current strategy.

Previously, Lagarde emphasized the strengthening labor market in the eurozone and the rise in core inflation. The ECB considers these factors to be key drivers of price pressure. Despite inflation reversing downwards, representatives of the eurozone's central bank believe that the fight against inflation is far from over.

Currency strategists at Goldman Sachs claim that inflation in the United States may decline more slowly than in the EU and may not always meet market expectations. Against this backdrop, many investors believe that the sharp slowdown in global economic growth will trigger a rapid reduction in inflationary pressure. However, Goldman Sachs warned that these expectations do not always come true. According to the updated Federal Reserve dot plot, the majority of FOMC policymakers expect the Fed funds rate to increase by an additional 0.50% in 2023. At the same time, short-term inflation expectations in the United States have fallen to the lowest level in 2.5 years.

Against this backdrop, the American currency has shown a noticeable decline, yielding to the euro. Early on Monday, June 19, EUR/USD traded at 1.0932, aiming to maintain its upward trend.

EUR/USD moved up by 1.1% at the end of last week, driven by positive comments from the ECB president. Later, the pair stabilized near 1.0950 but retreated afterwards. Analysts noted that EUR/USD surpassed the 50-day moving average after climbing above 1.0880. It should be noted that since the beginning of 2023, the pair has been in a broad ascending price corridor, and this trend is gaining momentum.

According to experts' estimates, considering the upward trend of EUR/USD, it may reach 1.1100 by the end of the month. The next important level is considered to be 1.1200, where the 200-week moving average is located. Additionally, multiple pivot points that determine the pair's future dynamics are concentrated here.

In the current situation, the battle for the dollar's dominance continues. Despite struggling against the euro, the US dollar remains resilient. At the beginning of the new week, USD had a mixed performance against EUR. However, during the correction, the trajectories of major currencies are constantly changing.

Furthermore, profit-taking by several investors has been noted. Against this backdrop, the euro has slightly declined against the dollar after a 1.7% increase last week following the ECB's rate hike decision.

The US dollar declined across the board due by growing confidence in a soft landing of the global economy and hawkish views of G10 central bank heads outside the United States. According to economists at ING, this would result in inflation forecasts and tightening cycle expectations being revised. Many central banks lean towards further interest rate hikes. The report by ING noted that investors were reducing their cash holdings, often ignoring USD and investing in bonds, stocks, and emerging markets.

However, the greenback still has a significant chance to rise further. Current data on USDX reflects bullish sentiment towards the American currency. Market participants have resumed building net long positions in USD after a one-week pause, with positions reaching its highest level in the past two months. Furthermore, leading investment funds reduced weekly dollar sales by 33%. The continuation of the current trend contributes to further upward movement of USD, the report concluded.