Euro Weekly Forecast: Geopolitical Tensions and Key US Data to Influence EUR/USD Movement

The European Central Bank (ECB) is poised to shift its monetary policy stance, with interest rate cuts expected to commence as soon as the next ECB meeting in June, according to several ECB voting members. Following President Lagarde’s indication of the June 6th meeting as a potential starting point back in March, subsequent statements from various central bank members have underscored the likelihood of interest rate reductions if inflation continues to decline. With the June meeting widely anticipated to signal the beginning of rate cuts, discussions have already turned to the possibility of a second cut at the July meeting. This anticipation has exerted downward pressure on the euro in recent weeks, particularly as the Federal Reserve is now projected to lower rates later in the year, hampering any significant upward movement for EUR/USD.

The recent escalation in the conflict between Israel and Iran, marked by Israel’s drone attack on Isfahan in Iran, has spurred a wave of risk aversion across global markets, bolstering demand for safe-haven assets like the US dollar. However, Iran’s subsequent statement indicating no immediate plans for retaliation has somewhat tempered concerns, potentially averting a full-blown conflict between the two nations.

Looking ahead to next week, investors will closely monitor a slew of economic and sentiment indicators, including global PMI releases and the initial estimate of US Q1 GDP, along with the Fed’s preferred inflation gauge, Core PCE. Additionally, market volatility could be heightened by earnings reports from major companies such as Microsoft, Alphabet, Tesla, General Electric, Ford, Intel, Chevron, and Exxon.

In terms of technical analysis, this week’s price action suggests that EUR/USD may face challenges in convincingly surpassing the 1.0700 level. Bearish signals are apparent with all three simple moving averages aligned in a downward trend, while the CCI indicator is indicating a move out of oversold territory. Key support levels include the 38.2% Fibonacci retracement at 1.0610, followed by the psychological level of 1.0600.

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