EUR/USD Struggles to Break 1.0720 as Fed Easing Bets and Eurozone Stagnation Offset

Dollar Weakness Offers Relief, But Euro Fails To Capitalize On Fed Easing Bets

EUR/USD trades near 1.0720, slightly higher on the day, as dovish commentary from Fed officials pressures the dollar lower but fails to ignite a breakout in the euro. U.S. core PCE rose 2.7% YoY in May, up from 2.6%, aligning with expectations but leaving rate cut probability intact. Personal spending contracted 0.1%, and personal income plunged 0.4%, the worst since 2021—fuelling bets for a Fed cut in September, now priced at 91.5% via CME FedWatch. Despite the soft dollar backdrop, the euro remains constrained by weak Eurozone growth and German manufacturing PMI contraction.

Ecb Policy Divergence Keeps Euro Bulls On Edge Despite Dovish Fed Narrative

While U.S. rate cuts gain momentum, the ECB remains cautious. Despite inflation inching lower, ECB hawks have not committed to a deep cutting cycle. Markets expect another 25bp ECB cut by October, but sticky core inflation and political fragmentation are limiting the ECB’s scope. The result is a sluggish euro reaction despite broad dollar softness. German bund yields fell to 2.41%, while Italian yields slid to 3.88%, narrowing spreads but failing to support EUR/USD meaningfully.

Technical Setup: Eur/Usd Holds Above 1.0700 But Lacks Breakout Momentum

The pair is rangebound between 1.0700 and 1.0760, with strong overhead resistance at 1.0790, the 200-day moving average. RSI on the daily chart is neutral near 51.4, and MACD signals lack direction. A breakout above 1.0790 would target 1.0835 and 1.0920, while failure to hold 1.0700 opens a path to 1.0630, followed by the May low at 1.0598. Euro bulls need stronger data or a Fed policy shift to regain upside control.

Eurozone Data Fails To Inspire, Even As U.S. Yields Fall

Despite U.S. 10-year yields dropping to 4.255%, the euro has not decisively rallied. Eurozone unemployment held at 6.4%, while core CPI edged down to 2.8% YoY. German retail sales fell 1.0% in May, and French GDP rose just 0.1% QoQ, keeping the ECB in a data-dependent stance. Markets await Friday’s U.S. NFP report and Fed Chair Powell’s speech for clearer guidance. Until then, EUR/USD may continue oscillating in a narrow band.

Political Risk And U.S. Trade Developments Add Complexity To Euro Path

Trump’s proposed $3.9T fiscal plan and tariff threats have weakened the dollar short-term, but longer-term implications may swing in the dollar’s favor if risk appetite evaporates. Meanwhile, the euro is contending with elections in France and Italy that could destabilize fiscal policy. Cross-asset correlations also show tighter coupling between EUR/USD and risk assets like the S&P 500, which recently hit a record 6,173.07, suggesting euro movements may remain linked to global equity sentiment.

Verdict: EUR/USD – HOLD (Stuck in range; upside limited by ECB caution and weak Eurozone data, downside cushioned by U.S. dollar softness and Fed cut momentum)

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