The rate of EUR to USD was holding on to gains above 1.07 during the last two months, but last week we saw a strong bearish move, s0 1.05 looks pretty close now. The technical chart is showing a bearish reversing pattern, while fundamentals are also turning bearish for this pair, which is forming a toxic mix for buyers.

EUR/USD Chart Daily – The 100 SMA Turned Into Resistance

The Euro went through a steep fall in the second half of last week, primarily due to a hawkish Federal Reserve and a dovish European Central Bank (ECB). This contrast in monetary policy stances has led to a sharp drop in the EUR/USD exchange rate, with the pair losing more than 2 cents this week. This performance marks the worst week for the EUR/USD in nearly a year.

The hawkish stance of the Federal Reserve, characterized by expectations of higher-for-longer interest rates, has bolstered the US dollar against its major counterparts, particularly the Euro. Meanwhile, the dovish signals from the ECB, including hints of a possible rate cut in June, have weakened confidence in the Euro, contributing to its decline against the US dollar.

ECB and FED Policy Diverge

The EUR/USD pair is exhibiting volatility in response to the announcement of US CPI data, which deviated significantly from expectations. According to data from the US Bureau of Labor Statistics, prices in the United States rose by 3.5% year-on-year in March, surpassing expectations for a 3.4% increase. This follows a 3.2% year-on-year increase in February. The higher-than-expected inflationary pressure pushes pricing pressures well beyond the Federal Reserve’s 2.0% target.

This unexpected increase in inflation makes it less likely that the Federal Reserve will lower interest rates from their current level of 5.5% in June, as previously projected. This contrasts with the European Central Bank’s (ECB) anticipated rate cut, which has been brought forward to June. The divergence in central bank forecasts, with the ECB acting sooner and the Fed delaying its first action to the fourth quarter, has been observed over several months.

EUR/USD Live Chart