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12 June 2025,06:31

Daily Market Analysis

Euro Gains Ground, But Caution Prevails

12 June 2025, 06:31

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Key Takeaways:

*Soft U.S. inflation and trade optimism buoy the euro, as weaker-than-expected May core CPI print reduces pressure on the Fed to tighten further, sending the Dollar Index lower.

*ECB adopts a cautious easing stance, framing its recent 25bps cut as preemptive amid cooling wage growth, signaling reluctance to commit to an aggressive rate-cutting cycle.

Market Summary:

The euro advanced modestly against the dollar this week, lifted by softer U.S. inflation data and guarded optimism surrounding U.S.–China trade talks. However, lingering geopolitical risks and diverging monetary policy signals continued to limit upside.

A weaker-than-expected U.S. May core CPI print—rising just 0.1% MoM versus a 0.3% forecast—dampened near-term inflation concerns and weighed on the dollar, as traders dialed back expectations for aggressive Fed tightening. The Dollar Index (DXY) slipped to 98.30, reinforcing euro strength. That said, Fed rate cut odds remain fluid, with markets still pricing in a 50% chance of easing by September.

In contrast, the European Central Bank signaled a more measured approach despite last week’s 25bps rate cut. Chief Economist Philip Lane framed the move as preemptive, with disinflationary momentum now partially embedded. Slower wage growth—negotiated pay gains eased to 3.1% YoY—supports the ECB’s case for patience, though persistent growth headwinds remain a constraint.

The euro remains underpinned by dollar softness and ECB restraint, but sustained upside will likely hinge on clear direction from U.S. data and central bank rhetoric. Political and geopolitical volatility continue to present downside risks, with EUR/USD poised to consolidate unless macro clarity improves.

Technical Analysis 

EURUSD, H4

EUR/USD continues its upward advance, recently breaching the 1.1450 resistance level and approaching the next key barrier at 1.1535. The breakout follows a period of steady accumulation and now places the pair at its highest levels in over a month. While bullish momentum has accelerated, price action is now entering overbought territory, raising the risk of exhaustion at current levels.

Momentum indicators present a mixed, albeit cautiously optimistic, outlook. The Relative Strength Index (RSI) has surged to 72, well above the overbought threshold of 70. While this reflects strong bullish sentiment, the elevated reading also warns of potential pullback risk, particularly if buying pressure begins to fade. 

Meanwhile, the MACD is trending positively, with the MACD line extending further above the signal line and both lines residing in positive territory. This bullish crossover confirms the recent upside breakout and reinforces the broader upward bias. However, the distance between the two lines remains relatively modest, indicating that while momentum is improving, it has not yet reached a runaway bullish phase.

Resistance levels:1.1535, 1.1580

Support levels: 1.1450, 1.1370

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