• USD strengthens, yet Euro holds firm, with EUR/USD at 1.0746 amid policy shifts anticipation.
• Anticipated Fed’ skip and hike’ could reshape US-EU interest rate dynamics, potentially favoring Euro.
• Possible US economic downturn might trigger ‘dollar smile’ as markets eye key economic indices.

EUR/USD pares some of its earlier gains, still trading in a positive territory amidst a busy week in the economic agenda, with major central banks set to adjust their monetary policies. The US Dollar (USD) strengthened ahead of Wednesday’s Fed decision but is yet to overshadow a solid Euro (EUR). At the time of writing, the EUR/USD exchanges hands at 1.0746, almost flat.

Market awaits key monetary moves as USD strengthens against the resilient Euro

Wall Street is trading with modest gains ahead of the Federañ Reserve’s (Fed) June monetary policy meeting. The Fed is expected to keep rates unchanged, as shown by money market futures, with the CME Fed WatchTool odds for no change in June at around 71%. Nonetheless, for the next month, odds for a 25 bps lie above the 50% threshold, cementing the case for a Fed skip followed by a rate increase.

However, the recent two monetary policy decisions of significant central banks surprised the markets with unexpected decisions by the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC). Although, at a minimum, EUR/USD traders should be aware the Fed could rock the boat and lift rates in June.

On the Eurozone (EU) front, the economic calendar on Monday was light, but it would increase the tone on Tuesday with Germany’s inflation. On Thursday, the European Central Bank (ECB) is expected to raise rates by 25 bps, which, according to estimates for the Fed and the ECB’s decision, would reduce the interest rate differential between the US and the EU, favoring the latter.

That said, upside pressure on the EUR/USD is expected. Still, economic deterioration in the US could trigger the “dollar smile” theory, which supports the greenback in phases of global economic stress.

Upcoming events

The US economic agenda will feature May’s Consumer Price Index (CPI) and the NFIB Business Optimism Index. On the EU front, the German and Spain Harmonised Index of Consumer Prices (HICP) for both countries and the ZEW Economic Sentiment.

EUR/USD Price Analysis: Technical outlook

The EUR/USD has been consolidated within the 1.0670/1.0790 area for the last eight days, unable to break beyond the boundaries of the range, but with the 100, 20, and 50-day Exponential Moving Averages (EMAs), sitting above the spot price. Hence, the EUR/USD is slightly tilted downwards in the near term. For a bearish continuation, the EUR/USD needs to clear the June 9 daily low at 1.0742, which could open the door for further losses once cleared. The next support would be the 1.0700 figure, followed by the last week’s low of 1.0667, before dripping towards the lows of 2020 at around 1.0635. Conversely, the EUR/USD resistance levels lie at the confluence of the 100 and 20-day EMAs at 1.0766/68, followed by the 1.0800 mark. The next resistance emerges at 1.0811, the 50-day EMA.