Euro retreats to near 1.1213 against the US Dollar as the latter rebounds.
Higher oil prices appeal to have supported the US Dollar’s recovery move.
French fiscal risks widen to other Eurozone nations.
The Euro (EUR) surrenders its early gains against the US Dollar (USD) and flattens at around 1.1213 during the European trading session on Tuesday. The major currency pair falls back as the US Dollar rebounds strongly due to a further increase in oil prices.
In European trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, rebounds to near 101.91 from its day’s low of 101.74. Still, the DXY is down 0.13%.
The WTI Oil price jumps 2.15% to near $100.20, the highest level seen in over a month. Ongoing conflicts in the Middle East, with Iran threatening to extend blockade to other sea routs, have increased risk premium for oil prices.
Higher oil prices de-anchor global inflation expectations, a scenario that increases the odds of interest rate hikes by central banks.
The US Dollar underperformed in the past week due to concerns over Artificial Intelligence (AI)-related optimism.
Analysts at MUFG highlight that US financial markets have been “a major beneficiary of strong foreign investor demand driven by AI-related optimism.” They note that foreign investors purchased “USD942 billion of US equities in the twelve months to July, while purchases of US corporate bonds increased sharply to USD452 billion over the same period.” MUFG argues that these “sizeable inflows highlight how the USD has become increasingly tied to investors’ search for higher returns in US financial markets, rather than benefiting from its traditional safe-haven status.” However, they caution that “this dynamic also leaves the USD more exposed to a reversal if sentiment towards AI deteriorates.”
Meanwhile, French fiscal turmoil spreading to other nations of the Eurozone has dampened the appeal of the Euro.
Analysts at Deutsche Bank highlight how the latest bout of French political turmoil has rippled across European markets, noting that “those market concerns around French debt cascaded across other countries and asset classes too.” They point out that “the Italian 10yr spread over bunds was also up +4.7bps on the day to 111bps, whilst Spain’s was up +1.2bps to 62bps.”
EUR/USD Technical Analysis
In the daily chart, EUR/USD trades at 1.1219, keeping a bearish near-term tone as it remains below the 20-period exponential moving average (EMA) at 1.1273. The pair’s inability to reclaim this short-term EMA suggests that rallies are being capped by overhead supply, while the Relative Strength Index (14) at 38.5 stays below the neutral 50 line, hinting at lingering downside pressure rather than a decisive recovery.
On the topside, immediate resistance is located at the 20-period EMA at 1.1273, which needs to be cleared to ease the current bearish bias and open the way for a more sustained rebound. Until that level is reclaimed, price action is likely to remain vulnerable to renewed selling on approaches to the EMA, with the lack of nearby technical supports on the chart reinforcing the risk of further slippage if sellers regain control.
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