The EUR/USD currency pair has broken below a critical support level near 1.14, signaling potential further declines as the US dollar remains robust. This movement comes in response to the Federal Reserve’s recent hawkish stance, which surprised markets by projecting at least one rate hike before the end of the year. The Fed’s updated dot plot indicated an expectation for an additional 38 basis points of tightening, with a 32% chance of a July rate increase and a 68% chance in September. This shift has strengthened the greenback, putting pressure on the euro.
The Federal Reserve’s commitment to restoring price stability and returning inflation to its 2% target has become clear. Market participants now closely watch upcoming US economic data releases, including jobless claims and personal consumption expenditures (PCE), which could influence the Fed’s next moves. Former Fed official Kevin Warsh emphasized that financial markets provide essential signals for guiding central bank policy, highlighting the importance of incoming data over speculative reactions.
Meanwhile, the European Central Bank (ECB) maintains a tightening bias but has paused further rate hikes until at least September, waiting to assess economic developments over the summer. Market pricing suggests about 28 basis points of additional ECB tightening by year-end. Recent Eurozone flash Purchasing Managers’ Index (PMI) data revealed a notable slowdown in inflation, easing at the fastest rate since February. Although economic activity remains subdued, this moderation could lead to gradual improvement in coming months. However, any further ECB hikes risk deepening economic weakness in the region.
Technically, the breach of the 1.14 support on the daily chart opens the way toward the next key downside target near 1.10. Traders anticipate that if US economic data softens in the short term, EUR/USD might experience a corrective rebound toward a descending trendline. Sellers are expected to defend this trendline to push prices lower, while buyers would need a break above it to challenge resistance around 1.18.
On shorter timeframes, particularly the one-hour chart, a minor descending trendline indicates ongoing bearish momentum. Sellers may use this trendline as a barrier during any pullbacks, aiming for fresh lows below current levels. Conversely, a break above this line could trigger a short-term rally toward approximately 1.1520.
Looking ahead, key US data releases scheduled for tomorrow include jobless claims and PCE figures, followed by Friday’s University of Michigan consumer sentiment survey. These reports will be critical in shaping market expectations for future Fed policy and influencing the EUR/USD outlook.
Overall, the combination of firm US dollar strength driven by hawkish Federal Reserve signals and cautious European Central Bank actions has placed the euro under pressure. Until new data shifts market sentiment, EUR/USD is likely to remain vulnerable with downside risks prevailing.
