The euro is confidently recovering after a recent correction and is once again testing the 1.1660 area against the dollar. The single currency is supported by several factors at once: declining demand for the US dollar, rising expectations of a more hawkish stance from the European Central Bank, and improved market sentiment following easing geopolitical concerns.
Market participants continue to price in an almost certain ECB rate hike at the June 11 meeting, which is boosting interest in European assets.
Markets increase bets on ECB tightening
The latest ECB meeting minutes showed that some policymakers were ready to support a rate hike as early as the April meeting. The money market is now pricing in not only a 25 basis point increase in June but also the possibility of additional tightening by the end of the year. Against this backdrop, European bond yields continue to rise, narrowing the gap with US Treasuries and supporting the euro.
Inflation вновь becomes a driver of euro strength
Additional support for the single currency comes from persistent inflationary pressure in the eurozone. Annual inflation remains around 3%, well above the ECB’s target, while rising energy prices continue to pose risks of further acceleration. Under these conditions, it is becoming increasingly difficult for the regulator to discuss policy easing, which the market interprets as a factor supporting further euro strength.
Near-term outlook
From a technical perspective, the 1.1660 area is becoming a key resistance level for the EUR/USD pair. A truce between the US and Iran could contribute to a breakout above this level and a move toward 1.1680–1.1700; however, this upside may be used as a selling opportunity.
As previously noted in the article EUR/USD declines toward 1.1600 amid rising demand for the US dollar, developments in the Middle East may continue to influence the pair’s dynamics.
Latest EUR/USD News
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