The Euro against the US Dollar showed an increase in buying during the Asian session on Friday, successfully reversing most of the previous day's decline, reaching a level of 1.0685, which is the lowest level in the last three months.

Currently, the spot price is around 1.0720, experiencing an increase of about 0.20% today, supported by a slight weakening of the US Dollar (USD). However, it seems challenging to achieve significant appreciation.

The USD Index (DXY), which tracks the movement of the Greenback against several currencies, has declined from its highest level since March 9, as buyers decided to take profits ahead of Chinese inflation data and the G20 summit over the weekend.

Additionally, the decline in US Treasury yields, along with signs of stability in the stock market, has weakened the status of the US Dollar as a safe haven, ultimately supporting the EUR/USD pair. However, it is important to note that the possibility of further tightening by the Federal Reserve (Fed) will limit significant declines in US Treasury yields and the USD exchange rate.

In fact, the market has projected a 25 bps rate hike by the end of this year and expects the Fed to maintain higher interest rates for a longer period. This confidence was reinforced by the weekly US Initial Jobless Claims data released on Thursday, which showed a decline greater than expected, falling from 228,000 to 216,000 the previous week.

This coincided with optimistic results from the US Services PMI, supporting the narrative of US economic resilience. This will allow the Fed to maintain its hawkish policy. On the other hand, officials from the European Central Bank (ECB) have not provided clear indications regarding future rate hike plans.

It should be noted that Peter Kazimir, a policymaker from Slovakia, expressed support on Wednesday for the proposal to raise interest rates again in September, arguing that such a move is necessary as inflation remains high and inflation expectations are above the ECB's 2% target.

Also Read :

ECB's Monetary Policy Outlook: Euro May Rise

EUR/USD Bullish Near 1.1055 Ahead of Fed's Monetary Policy

 

Conversely, Ignazio Visco, Governor of the Bank of Italy and ECB Governing Council member, expressed that the ECB is nearing the level where it needs to stop rate hikes. This may prevent traders from taking aggressive bullish positions on the Euro and limit significant gains in the EUR/USD pair.

Currently, traders are awaiting the latest German Consumer Price Index (CPI) data and French industrial production data in hopes of providing a boost to the market. On the other hand, there are no significant US economic data releases scheduled, so movements in the USD will be influenced by US Treasury yields and global risk sentiment.

Nevertheless, the EUR/USD pair remains in a downtrend for eight consecutive weeks, and the aforementioned fundamental conditions suggest that the possibility of a trend reversal remains low. Therefore, the potential for further gains appears limited, especially considering the important upcoming ECB meeting next week.


Disclaimer!

This analysis is based on fundamental and technical perspectives from reliable sources and is not intended as advice or solicitation. Always remember that this content aims to enrich readers' information. Always conduct independent research regarding other forex information as a reference for your trading.

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