Key Moments
- Markets have priced in 38 bps of additional Fed tightening by year-end, with rate hike odds split between July and September.
- EUR/USD has broken below key support around 1.14 on the daily chart, exposing potential downside toward the 1.10 area.
- Traders are watching upcoming US Jobless Claims, PCE data, and the University of Michigan survey as the next major catalysts for USD and EUR/USD.
Fed Signals More Tightening, Lifting the Dollar
The US dollar remains underpinned after last week’s hawkish Federal Reserve dot plot, which reinforced the central bank’s tightening bias and triggered a more aggressive repricing of interest rate expectations.
In a surprise shift versus prior consensus, the Fed projected a rate increase this year, whereas markets had anticipated no changes to policy. Futures now reflect 38 bps of additional tightening by year-end. Probability estimates show a 32% chance of a rate hike as early as July and a 68% likelihood of a move in September.
According to Warsh, “financial markets perform best when they react to incoming data and are less efficient when they have to ask how the Federal Reserve will react to the incoming data”. He further emphasized that “financial markets are the most important source of information to guide the central bank”.
Trump, posting on Truth Social, did not challenge the Fed’s stance under Chair Powell, diverging from his prior approach. Instead, he remarked that “rate hikes could happen,” which appears to offer political cover for Warsh and the Fed to proceed as they see fit.
The broader message is that the Fed is now firmly focused on restoring price stability and steering inflation back to its 2% target, which it has not met since 2021. If incoming data point to the need for tighter policy, the central bank is positioned to act, a backdrop that continues to support the greenback ahead of the next wave of economic releases.
ECB Stays Hawkish but Market Already Priced In
On the euro side, the European Central Bank is also maintaining a tightening bias, but the market has long since incorporated expected rate hikes into asset prices. The ECB is effectively on hold at least until September, monitoring how data evolve over the summer before committing to further moves.
Market pricing currently reflects 28 bps of additional tightening by year-end, with the next potential hike seen no earlier than September.
Recent Eurozone Flash PMI data showed inflation slowing at the fastest pace since February, just before the US-Iran conflict began. Although overall activity remains weak, the downward momentum has moderated and could set the stage for gradual improvement in the coming months. However, any continued rate increases by the ECB risk adding further pressure to already subdued economic conditions.
EUR/USD Daily Chart – Key Support Gives Way
On the daily timeframe, EUR/USD has dropped through a significant support zone near the 1.14 level. This breakdown opens scope for a move toward the 1.10 area as the next notable downside objective.
Should upcoming US data soften over the next few weeks, a corrective rebound could develop back toward the descending trendline. If such a pullback materializes, sellers are likely to defend that trendline, using a clearly defined risk level above it while aiming for fresh lows. Buyers, in contrast, will be watching for a break above that trendline to potentially extend an advance toward the 1.18 region.
| EUR/USD Level | Technical Significance |
|---|---|
| 1.18 | Upside target for buyers if price breaks above the daily trendline |
| 1.14 | Former key support zone now broken |
| 1.10 | Next potential downside objective after the support break |
Shorter-Term EUR/USD Technical Picture
4-Hour Timeframe
On the 4-hour chart, price action does not provide additional clear signals beyond what is visible on the higher timeframe, making it less useful at this stage for refining the broader view.
1-Hour Timeframe
On the 1-hour chart, a minor descending trendline is currently outlining the short-term bearish bias. If EUR/USD stages a recovery, sellers are expected to lean against this trendline, placing risk just above it in an effort to press the pair to new lows.
Conversely, if buyers manage to force a break of this minor trendline, the immediate objective would be an extension of the pullback toward the 1.1520 level. The red lines on the chart mark the average daily range for the current session.
Data Releases in Focus
The next key catalysts for the dollar and EUR/USD are scheduled for tomorrow, with US Jobless Claims and the US PCE report on the docket. These will be followed on Friday by the final reading of the University of Michigan consumer sentiment survey, which will close out the week’s major US data releases.
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