EUR/USD Surges to Three-Month Highs as Ceasefire Dampens Dollar Demand
The EUR/USD currency pair is witnessing a significant surge, breaking above key resistance levels and reaching fresh three-month highs.
Quick overview
- The EUR/USD currency pair surged to three-month highs near 1.1600, driven by a ceasefire agreement between Iran and Israel.
- The US Dollar Index fell to 98.00 as geopolitical risks diminished, encouraging risk-taking in the markets.
- Technical analysis indicates strong bullish momentum for EUR/USD, but overbought conditions may limit further gains.
- Recent European economic data and dovish signals from the Federal Reserve suggest potential support for the Euro amid changing market dynamics.
The EUR/USD currency pair saw a huge surge on Tuesday, reaching new three-month highs near 1.1600 after rising 1.3% from Monday’s lows. The rapid rise was mostly due to a big change in how people felt about the market when President Trump said there was a ceasefire agreement between Iran and Israel. This made people less likely to buy the US Dollar as a safe-haven asset.
Geopolitical Developments Drive Currency Flows
The announcement of a truce was a big turning point for currency markets since it took away the geopolitical risk premium that had been keeping the Dollar strong. Both Iran and Israel agreed to stop fighting after around two weeks of war, as part of the deal. This news caused a lot of people to sell off the US Dollar Index (DXY), which fell to 98.00. At the same time, it made people more willing to take risks and encouraged them to move their money into assets that pay more interest.
The good mood spread to the markets for goods, as crude oil prices fell more than 3% to around $66.00. This drop is especially good for the Eurozone economy because the EU is a net oil importer, and lower energy costs might help lower inflation and boost economic growth.
EUR/USD Technical Analysis Points to Key Resistance Levels
From a technical point of view, the EUR/USD has broken through a number of important resistance levels during its recent rise. In the early trade, the pair broke over the important resistance level of 1.1586 and touched 1.1616. This was a clean breakout above a falling trendline that had been holding back advances.
The currency pair is trading above both the 50-EMA (1.1526) and 200-EMA (1.1470) on shorter time periods, which is a sign of strong bullish momentum. The breakout has been helped by high volume and long-bodied bullish candles, which show that buyers are still firmly in charge of the short-term trend.
But UOB Group analysts say that being overbought could stop further increases. Their technical team, lead by Quek Ser Leang and Peter Chia, said that even though the rapid advance may continue, “deeply overbought conditions suggest EUR is unlikely to break clearly above 1.1620.”
Range-Bound Trading Expected Despite Recent Volatility
UOB Group analysts think that EUR/USD will keep trading in a certain range in the future, but the range will be wider because of higher volatility. They have changed their prediction for the trading range from 1.1400-1.1570 to 1.1480-1.1660. This change is because of the higher volatility experienced in recent sessions. On Monday alone, the pair moved between 1.1451 and 1.1581.
1.1632 and 1.1664 are the next important resistance levels to watch. If the bullish momentum keeps going, 1.1702 might be a medium-term objective. The first level of support is presently at 1.1586, and the second level of support is at 1.1535.
Federal Reserve Policy Outlook Remains Crucial
Recent comments from Federal Reserve officials have also suggested that the Dollar may be getting weaker, which is bad news for the Dollar. Michelle Bowman, the vice chair, said she was worried about the weak job market, and Governor Waller said again that a rate drop in July was still possible. These dovish signals have made yield-focused investors less interested in assets that are priced in dollars.
Market players are now keenly expecting Fed Chair Jerome Powell’s impending appearance before Congress, which might provide key insights into the central bank’s policy trajectory. The CME FedWatch tool shows that the markets only think there is a 20% chance of a rate drop in July. This means that there is a lot of opportunity for Powell to change his mind if he sounds more dovish.
European Economic Data Provides Additional Support
The German IFO Business Climate data that came out on Tuesday showed small gains across all indexes in June, which helped the Euro stay strong. The Expectations Index was up from 88.9 to 90.7, which shows that people are becoming more confident in the Eurozone’s economic stability and is an indication of support for the single currency.
Even while the market is going up, economists warn that the rally may be getting close to its peak, given the pair has already gone up a lot since early March. The fact that the market is overbought and that there is resistance near the 1.1630 level means that any further advances may need further dovish surprises from the Federal Reserve or more good news about the European economy.
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