The Euro has attempted a recovery to $1.1403 on Thursday after being pushed to its lowest level in almost a year during the previous week. According to Business Standard, the counter was severely battered through the week as the dollar firmed up on a hawkish Fed stance. The US Dollar Index is trading above the 101 mark, while the yield on the US 10-year Treasury note is hovering around 4.4% this morning, reflecting the continued strength in dollar-denominated assets. However, the recovery from the 12-month low of 1.1350 suggests some stabilization in the pair after the severe sell-off.
The Fed's policy meeting last week, the first under Chairman Kevin Walsh, has been interpreted as hawkish by markets, with expectations for a 25-basis-point hike at the July meeting rising to 36%, up from 8.5% a week ago. Meanwhile, the market is pricing in around a 70% chance of a September hike, up from 30% a week ago, according to Investing.com India. Higher rate hike expectations come amid a resilient U.S. labour market and sticky inflation, with U.S. Core PCE data this week being a key focus that could provide further insight into the likelihood of a hike. This contrasts with the euro, where the ECB hiked rates in June and could hike rates again, but investors appear far more concerned about the weak growth outlook than the prospect of higher rates.
EUR/USD has broken below its symmetrical triangle pattern and fallen beneath both the 50 and 200 SMA, reinforcing the bearish outlook. The pair dropped to a low of 1.1350, with sellers looking to extend losses towards 1.1300, the round number, ahead of 1.1200. The RSI is approaching oversold territory, suggesting the pace of the decline may slow, but momentum remains firmly bearish and oversold conditions alone are rarely enough to reverse a strong trend. Any recovery would first need to rise above 1.1400, the March low, with 1.1500 coming into focus above that level. It would take a rise above 1.1620, the mid-June high, to create a higher high, while a move above 1.1670 would bring 1.1700 into focus.
Data yesterday showed that Eurozone PMIs contracted again in June, with services activity remaining weak, with the pace of contraction slowing compared with May but still pointing to a stagnant economy rather than a meaningful recovery. Meanwhile, ECB President Christine Lagarde downplayed concerns over second-round inflation effects in a slightly dovish tone, suggesting that even if there is another rate hike, the ECB is unlikely to move aggressively beyond the neutral range. Her comments suggest that the ECB is constrained by weak growth, limiting the euro's ability to benefit from higher rates and leaving the currency vulnerable to a stronger U.S. dollar. For now, EUR/USD appears caught between a Federal Reserve that is becoming more hawkish and an ECB that is constrained by weak growth.
Oil prices have extended declines, falling more than 1% to a four-month low of $72 as shipping activity through the Strait of Hormuz gradually resumes, easing supply concerns. Vessel crossings through the Strait have increased in recent days, with estimates suggesting around 6 to 7 million barrels per day have recently moved through the Strait, compared with roughly 20 million barrels per day before the conflict. However, with Saudi Arabia and the UAE increasingly using alternative pipeline routes, flows through the Strait may only need to recover to around 14 million barrels per day for Gulf oil exports to return to pre-conflict levels. Meanwhile, U.S. crude stockpiles rose by 765,000 barrels in the week to June 19, according to API data, with increased supply combined with ongoing ceasefire negotiations and expectations of additional Iranian crude returning to global markets.
