FX.co ★ Crude | EUR/USD

Despite a six-day decline in the euro's exchange rate against the US dollar, bulls have recently launched a cautious counterattack. However, upcoming US macroeconomic data and the evolving monetary policy dynamics of central banks remain a crucial test of the sustainability of this downward trend. Following the European Central Bank's anticipated 25-basis-point interest rate hike, the euro faced unexpected selling pressure, prompting traders to question whether future tightening measures by the Federal Reserve would truly weaken the dollar, given that the market had largely priced in the traditional monetary policy direction. Fortunately, the euro ultimately held steady at 21 basis points, maintaining the technical foundation for its previous upward momentum. Despite these short-term headwinds, bulls remain dominant in the medium term. Historical charts clearly demonstrate that the euro's valuation has been undervalued compared to its multi-year average, leaving significant room for future gains. The market is widely skeptical about whether the Federal Reserve will tighten monetary policy aggressively for the remainder of the year, particularly in light of recent weaker-than-expected US economic data. Furthermore, traditional geopolitical safe-haven flows have gradually diminished, making it difficult to sustain demand for the dollar, while the European Central Bank’s continued monetary tightening has exacerbated policy divergences. Structural factors, such as the US Treasury’s increased purchases of long-term bonds and the formal outbreak of the US-Canada trade dispute, have also contributed to weakening the dollar’s potential appeal. The US labor market is weaker than in previous cycles, and inflation has declined in recent months, posing a significant challenge to the sustainability of the hawkish outlook. From a structural chart perspective, the upward momentum remains strong, with prices firmly established in the recent disequilibrium pattern (21) and touching the previous disequilibrium pattern (20). Unless these key support levels fail, the market will have established a solid technical foundation for a future recovery. While Thursday’s better-than-expected 5.4% increase in the US Producer Price Index (PPI) provided temporary support for the dollar, upcoming consumer price inflation data remains crucial in determining the near-term direction. Globally, the broader structural impact of long-term fiscal and economic policies continues to weigh on the dollar, ensuring that the fundamental factors supporting the euro outweigh any short-term downside. Currently, the only realistic opportunity for euro bears appears to hinge primarily on a broader escalation of geopolitical tensions in the Middle East, rather than on individual economic reports. As the market weighs these competing forces, the overall environment remains favorable for euro bulls due to the absence of significant long-term drivers.