EUR/USD Slides Toward 1.1300 as Global Bond Rally Offsets EU Trade Optimism

The EUR/USD pair is under pressure, slipping toward the 1.1300 handle in Wednesday’s Asian trading session. Despite hopes sparked by improved U.S.-EU trade relations, a stronger U.S. Dollar and bullish bond market sentiment—partly triggered by Japan’s fiscal strategy shift—have weighed on the euro.

EUR/USD Technical Analysis: Momentum Fades Near Key Support Zones

As of writing, EUR/USD trades near 1.1297, marking the second consecutive day of losses. Despite a cooling rally, the technical landscape still reflects a mildly bullish undertone.

• Key resistance levels to watch:
  • 1.1572 (April high)
  • 1.1600 (psychological barrier)
  • 1.1692 (October peak)
• Immediate support levels:
  • 55-day SMA at 1.1141
  • May low at 1.1064
  • Psychological round number 1.1000
  • 200-day SMA near 1.0810

While the Average Directional Index (ADX) hovers near 25, suggesting a weakening trend, the Relative Strength Index (RSI) at 55 signals modest bullish pressure—hinting at a consolidation phase rather than a reversal.

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Macroeconomic Snapshot: U.S. Dollar Gains on Bond Optimism and Fed Cues

The U.S. Dollar Index (DXY) climbed toward 99.60, boosted by upbeat consumer confidence data and a decline in U.S. Treasury yields across maturities. The rebound in the greenback coincided with a pullback in EUR/USD, dragging it from above the 1.1400 zone back toward its recent lows.

Japan’s indication of reducing long-term government bond issuance added fuel to the global bond rally, indirectly lifting demand for the dollar as a safer investment amid rising volatility.

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Trade Sentiment: Trump’s Tariff Delay Sparks Short-Term Euro Relief

Investor sentiment around the euro received a short-term lift after U.S. President Donald Trump delayed a proposed 50% tariff on EU imports to July 9, instead of enforcing it on June 1. Markets responded positively after Trump’s “very nice” call with the European Commission, which revived hopes for a peaceful resolution to ongoing transatlantic trade disputes.

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Monetary Policy Divergence Still a Dominant Market Driver

Despite temporary optimism, the divergence between ECB and Federal Reserve policy remains a long-term headwind for the euro.

• The ECB cut its deposit rate by 25 basis points in May to 2.25%, and speculation is building for another cut as early as June.
• In contrast, the Fed held rates steady, and while markets are pricing in two potential cuts by year-end, the U.S. central bank remains cautious amid sticky inflation.

ECB members, including Bundesbank President Joachim Nagel and Chief Economist Philip Lane, have maintained a guarded tone. Lane warned of possible inflationary risks stemming from stalled EU-US trade talks.

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Speculative Positioning: Euro Bulls Losing Momentum

The latest CFTC data shows that net long euro positions dropped to a 4-week low of 74.5K contracts, despite overall open interest climbing to its highest level since December 2023. The reduction in commercial net short positions indicates a more cautious institutional outlook.

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🔍 EUR/USD Outlook: Key Factors to Watch

• Continued strength in the U.S. Dollar and Treasury markets
• Outcome of the postponed U.S.-EU tariff negotiations
• Any hawkish/dovish shift in the Fed or ECB commentary
• Key support at 1.1141 and 1.1000 must hold to maintain medium-term bullish structure

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Bottom Line: While the euro is under pressure from a rising U.S. Dollar and global bond strength, positive developments on the trade front could provide short-term relief. However, with monetary policy divergence still in play, traders should brace for volatility and closely monitor technical levels for confirmation of a trend reversal or continuation.

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