- EUR/USD flirted with yearly highs near the 1.1640 zone on Wednesday.
- The US Dollar receded modestly amid mixed yields and a prudent Fed.
- Chief Powell kept the cautious tone in his second congressional testimony.
The Euro (EUR) maintained its constructive stance well in place vs. the US Dollar (USD) on Wednesday, prompting EUR/USD to clinch its fifth day of gains in a row and come close to its YTD highs around 1.1640.
The continuation of the upside momentum in the pair came as investors assessed the mitigating tensions in the Middle East as well as cautious remarks from Chief Jerome Powell at his second testimony before Congress.
Geopolitics and trade remain front and centre
The pair’s move higher appeared underpinned by further optimism surrounding the recently announced ceasefire in the Middle East, which was brokered by President Trump.
Despite the deal seeming fragile, it appears to be enough to reignite inflows into the risk-linked space, which ultimately contributed to recent gains in the single currency.
Back at the trade front, investors exhibited caution as they monitored the imminent July 8 deadline for the US tariff pause. In the meantime, the European Union (EU) diligently pursued trade agreements, primarily focussing on negotiations with London.
Fed-ECB monetary policy divergence remains in place
At its June policy meeting, the Federal Reserve (Fed) maintained its target range at 4.25–4.50% but raised its forecasts for unemployment and inflation to reflect tariff-driven pressures. Fed officials remain split: while the median dot plot anticipates 50 basis points of rate cuts by year-end, two policymakers see only a single 2025 reduction, seven expect no cuts, and eight envisage rates concluding the year between 3.75% and 4.00%.
Still around the Fed, it is worth recalling that Fed Chair Powell informed members of Congress that higher tariffs might start to raise inflation this summer, which will be a crucial time for the Fed to consider potential rate cuts.
Moreover, under questioning from Republican members of the House Financial Services committee regarding the Fed’s decision not to cut rates, as President Trump has requested, Powell indicated that he and several others at the Fed anticipate inflation will begin to rise soon and noted that the central bank is not in a hurry to lower borrowing costs in the interim.
In contrast, the European Central Bank (ECB) trimmed its Deposit Facility Rate to 2.00% earlier this month. ECB President Christine Lagarde struck a cautious tone, warning that further easing hinges on a significant downturn in external conditions.
Technical levels
Next on the upside for EUR/USD sits the 2025 peak of 1.1641 (June 24), ahead of the October 2021 high of 1.1692 (October 28) and the 1.1700 milestone.
Interim support, on the other hand, is seen at the 55-day simple moving average (SMA) at 1.1370, with further cushions at the weekly trough of 1.1210 (May 29) and the May base of 1.1064 (May 12), all preceding the 1.1000 threshold.
Momentum indicators favour the Euro, as the Relative Strength Index (RSI) has risen to nearly 67, suggesting upside potential, while the Average Directional Index (ADX), which is above 23, indicates modest trend strength.
EUR/USD daily chart
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