The EUR/USD pair is consolidating near a multi-year high reached in November 2021. It is fueled by persistent risk appetite and speculation over US interest rates. The pair remains underpinned despite minimal losses, helped by a decrease in geopolitical tensions and a positive market sentiment.
Besides, the Middle East ceasefire and hopes for a Federal Reserve policy change are influencing the US dollar. Also, strong Eurozone news and declining oil prices contribute to strengthening the euro. As a result, EUR/USD is nearing 1.1640.
Global Relief Fuels Gains the EUR/USD Pair Trading
Market confidence has increased despite the ongoing ceasefire between Iran and Israel being precarious. As a result, investors are diverting from the US dollar to riskier currencies. In addition, while they have risen slightly from Tuesday’s levels, the prices of oil remain much lower than their peaks in the last week. This encourages economic growth and discourages inflationary pressure, which is in favor of the Eurozone.
Meanwhile, the US Dollar Index is weak, at 97.60, a near three-year low. This is largely attributable to the sustained risk appetite and growing expectations that the Fed will ease monetary policy. In response, markets are pricing in an interest rate cut notwithstanding Fed Chairman Jerome Powell’s caution.
Will Powell’s Caution Shift Interest Rate Outlook?
Powell remained patient despite market expectations that the Fed would ease policy. He underlined the inflation worries brought on by higher tariffs and said the Fed will wait for data before taking any action. However, disappointing US consumer confidence data has fueled speculation about an upcoming policy shift.
The US Conference Board’s Consumer Confidence Index dropped precipitously on Tuesday. After revision, it fell from 98.4 to 93.0. The decline highlighted growing concerns over job security and future spending, adding to calls for lower interest rates. Furthermore, CME FedWatch data showed that expectations for a September rate cut rose to 85% from 65% the previous week.
In June, the German IFO Business Climate Index improved to 88.4, and Spain’s GDP increased by 0.6% every quarter. Despite having little effect on their own, these numbers helped the Euro gain strength in a weak dollar environment. Because of the favorable economic environment, the EUR/USD pair has gained ground.
EUR/USD Pair Eyes a Breakout Toward the 1.1700 Level
Following the break of a significant resistance trendline at 1.1540, the EUR/USD rally gained momentum. The subsequent hurdle at 1.1630 would bring about 1.1700 if broken. This target offers technical support for the rise. It also coincides with the June 10–12 move’s 127.2% Fibonacci extension.
A pullback to the 1.1535 area is still possible if bearish momentum slows down. A persisting fall below that price may stop the short-term trend to the upside and highlight the 1.1445 region. Trader focus will be on Powell’s next testimony and Middle Eastern developments for further clues.
The Euro’s direction will still be dictated by US economic data and global risk appetite. The EUR/USD may move higher further if geopolitical tensions do not change and US data does not improve. However, any evidence of fresh volatility or Fed reluctance to cut rates may tilt the balance.
Final Take
The high risk appetite and interest-rate focus indicate that the EUR/USD pair is likely to experience more volatility. Additionally, if 1.1630 breaks, the bullish momentum can gather further momentum in subsequent sessions. However, a hawkish surprise from the Fed or an increase in global tensions could easily snap the recent rally.
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