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EURUSD Downside Prevails As Dollar Demand Remains Strong

EURUSD traded lower on Monday as demand for the US dollar steadied despite the decline in geopolitical tensions. The pair traded at an on intraday low of 1.0634 at the time of writing after shedding 0.17%. The US dollar continues to be attractive as it becomes increasingly likely that there won’t be three but two rate cuts at most, with the first one coming after June.

Fed Chairman stated a week ago that there’s need to give the current high interest rates “more time” to work before initiating cuts. Furthermore, he added that the recent data is still insufficient to provide a definitive picture on whether inflationary pressures could be sustainably kept from rising.  Unlike the Fed, however, the ECB is expected to cut interest rates in its June meeting.

The Eurozone has been experiencing steady declines in inflation since the year began, while the US has reported successive increases in inflation for the last three months. This will exert downward pressure on the euro in the medium term.

ECB President Christine Lagarde is scheduled to speak during the New York on Monday, and her speech will likely provide guidance for the EURUSD trading pair. Meanwhile, the pair will also be influenced by the yields on the 10-year and 5-year Us treasuries, which stand above 4.600% as of this reading. At its current exchange rate, the pair is near November 2023 lows and it will take a substantial momentum to return to 1.0700s psychological level. However, the calming of tensions between Israel and Iran in the Middle East has weakened the safe haven demand for the US dollar, which could provide support to the pair.

Technical analysis

EURUSD pivots at 1.0647 and the downside will prevail is resistance persists at this level. That will favour the sellers to break the support at 1.0626 in extension and possibly test 1.0616. Alternatively, a move above 1.0647 will favour the buyers to build the momentum to head upwards, with the first resistance at 1.0664. An extension of the momentum could break the resistance and potentially test 1.0676.