The EUR/USD currency pair is trading near 1.1790 on Tuesday, as it pauses for breath after advancing on nine consecutive days that took it above 1.1800 for the first time in almost four years. The Euro has received support amidst broad-based weakness in the US Dollar, which continues to operate under fundamental pressure from emerging macroeconomic and geopolitical risks.
A combination of rising US fiscal debt, uncertainty about US trade policies, and aggressive Federal Reserve rate cut expectations has put the Greenback on notice, as investors are beginning to question whether the Dollar is invincible.
US Fiscal Worries and Trade Tensions Weigh on Sentiment
Fresh fears about further spending have shaken investor confidence in the US Dollar as President Donald Trump’s tax bill threatens to add another $3.3 trillion to the country’s deficit in 10 years. The bill has stalled as conflicts among Republicans assail economic sustainability.
Adding delays are trade disruption fears after an initial bump from the US-China rare earths agreement and Trump’s frustration regarding Japan negotiations, and Treasury Secretary Scott Bessent’s threats of tariffs. The possibility of new tariffs is expected if compliance is not met by July 9th.
Rate Cut Bets Accelerate Dollar Decline
The softening of the US economy, especially the disappointing PCE inflation data, has increased market expectations for monetary easing, with market participants viewing two rate cuts by the Federal Reserve before the end of the year as highly probable. The CME FedWatch Tool indicates that a 25 basis point cut by September is almost 100% likely.
These dovish expectations are compounding the Dollar’s weakness as the Fed’s cautious approach is set against rising economic and geopolitical headwinds.
EUR/USD Takes Breather After 9-Day Rally
The pair is tiring after the recent rally, as the 4-hour Relative Strength Index (RSI) shows overbought conditions, suggesting an imminent short-term correction. We now turn to key risk events that may shape rate expectations and the market direction:
Fed Chair Powell’s speech at the Central Bankers’ Summit in Sintra, Portugal, preliminary Eurozone CPI data, and key US releases, including ISM Manufacturing PMI and the JOLTS job openings report.
EUR/USD Technical Outlook
The Euro is under pressure as it battles back against resistance near 1.1800. A break above will open a continuation to 1.1925 based on the 261.8% Fibonacci extension of the pullback from June 12 – 23. Backing up this level is the gravitation of intraday charts towards overbought territory, indicating that a pullback could happen if momentum stops here. The key supports are 1.1750 (recent highs) and 1.1680 (June 27 low), should the Euro not hold above 1.1800.
Conclusion
While macro fundamentals still support the Euro relative to the US Dollar, technical considerations suggest that EUR/USD is due for a consolidation or correction in the short term. A confirmed break of 1.1800 would draw attention to the next higher level of 1.1900+, while weak inflation data or hawkish commentary from the Fed could lead to a pullback even further below 1.1800.
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