In the Asian session, the EUR/USD pair experienced a significant drop, breaking below the important support level of 1.0700. This decline was driven by substantial selling pressure, as the US Dollar Index (DXY) strengthened after surpassing the critical resistance level of 104.20.

In Asia, S&P500 futures recorded notable losses, reflecting a risk-averse sentiment among investors. There is a growing aversion to risk-sensitive assets due to expectations of an interest rate hike by the Federal Reserve (Fed). Investors are increasingly favoring the USD Index, anticipating a potential revaluation of the dollar basket due to hawkish Fed speculations.

Meanwhile, demand for US government bonds remains strong, as investors are optimistic that the proposal to increase the US borrowing cap will be approved by Congress before June 05. Consequently, the yield of the 10-year US Treasury bonds has declined to below 3.69%.

Despite resilient consumer spending in April, the Fed’s neutral interest rate policy stance has been challenged. Fed Chair Jerome Powell acknowledged that further rate hikes may be less appropriate due to tightening credit conditions. Attention is now shifting towards the release of the United States Nonfarm Payrolls (NFP) data, scheduled for Friday.

In the Eurozone, investors are eagerly anticipating the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) data, set to be released on Thursday. Estimates suggest that core monthly HICP growth will slow to 0.8% compared to the 1% recorded in April. Annual core HICP is also expected to soften slightly to 5.5% from the previous release of 5.6%. The headline HICP is projected to decelerate significantly to 6.3% from the previous figure of 7.0%.

Despite these developments, the European Central Bank (ECB) is expected to maintain a hawkish stance in June, given the considerable divergence of inflationary pressures from the desired target of 2%. Besides Eurozone inflation, market participants will closely follow the speech by ECB President Christine Lagarde for further insights.

EUR/USD Technical Outlook

The EUR/USD pair commenced today’s trading session with evident downward movement, breaking the intraday bullish trend line and indicating a potential decline on the intraday timeframe. The initial target for this decline is around 1.0745, and it is crucial to closely monitor the price action at this level. A breakthrough below 1.0745 would extend the bearish wave, with the next key level to watch being around 1.0630.

Hence, the prevailing sentiment for today suggests a bearish bias, reinforced by the current position below the EMA50. However, if the price manages to surpass 1.0870, it would invalidate the negative scenario and potentially trigger a resumption of the primary bullish wave.

The projected trading range for today is expected to oscillate between support at 1.0730 and resistance at 1.0875.