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sold at 1.1420

EUR/USD Recovers as Month-End Flows Offset Strong US Data, While Monetary Policy Remains the Primary Driver

EUR/USD recovered modestly on Tuesday as month-end portfolio rebalancing placed temporary pressure on the US Dollar, allowing the Euro to rebound despite another round of resilient US economic data. After falling to an intraday low of 1.1382, the pair recovered toward the 1.1415 area, suggesting that positioning flows are currently outweighing the immediate impact of stronger-than-expected US fundamentals.
Although the short-term recovery provided some relief for Euro bulls, the broader market narrative remains firmly centered on monetary policy expectations and the widening divergence between the Federal Reserve and the European Central Bank.

Strong US Data Continues to Support the Dollar

The latest US economic releases reinforced the view that the American economy remains remarkably resilient despite elevated interest rates.
The Job Openings and Labor Turnover Survey (JOLTS) reported 7.594 million job openings in May, marginally higher than April's revised reading and comfortably above market expectations. The figures suggest that labor demand remains healthy, supporting the argument that the economy continues to absorb restrictive monetary policy without significant deterioration.
Consumer sentiment also improved modestly. The Conference Board's Consumer Confidence Index rose to 91.2 in June from May's revised reading, although the result fell short of economists' forecasts. While households remain cautious, the data does not point to a sharp slowdown in consumer activity.
Together, these releases reinforce the Federal Reserve's view that the economy has yet to cool sufficiently to justify a shift toward easier monetary policy.

Federal Reserve Maintains a Hawkish Tone

Federal Reserve expectations remain one of the strongest pillars supporting the US Dollar.
Cleveland Federal Reserve President Beth Hammack reiterated that inflation remains above the central bank's target and emphasized that policymakers may still need to consider additional interest rate increases if price pressures fail to moderate. Importantly, she noted that inflation is no longer being driven solely by energy prices, indicating that underlying inflationary pressures remain persistent.
Financial markets have responded by increasing expectations that the Federal Reserve could deliver another rate hike later this year. According to current market pricing, investors now assign a meaningful probability to additional tightening, reflecting growing confidence that the Fed may need to maintain restrictive policy for longer.
Attention now shifts toward the week's key labor market releases, including the ADP Employment Report and the Nonfarm Payrolls (NFP) report. These data releases are expected to play a crucial role in determining whether markets further strengthen expectations for higher interest rates or begin to question the sustainability of the US economic expansion.

Geopolitical Risks Continue to Favor Safe-Haven Demand

Beyond economic fundamentals, geopolitical uncertainty continues to provide an additional layer of support for the US Dollar.
While diplomatic representatives from the United States and Iran have arrived in Doha, no formal negotiations have been scheduled, leaving uncertainty surrounding future relations between the two countries. Markets generally favor the US Dollar during periods of geopolitical uncertainty, as investors seek the liquidity and relative safety of Dollar-denominated assets.
Unless meaningful diplomatic progress emerges, geopolitical risks are likely to remain a supportive factor for the Greenback.

ECB Officials Deliver Mixed Policy Signals

On the European side, the outlook has become less straightforward.
Recent declines in oil prices have eased concerns over imported inflation across the Eurozone, reducing pressure on the European Central Bank to continue raising interest rates aggressively.
ECB policymaker Olli Rehn adopted a cautious tone, suggesting that significant second-round inflation effects have yet to materialize and emphasizing that policymakers should avoid committing to a predetermined path for future interest rates.
However, fellow ECB policymaker Pierre Wunsch presented a more hawkish assessment, arguing that secondary inflation effects remain a concern and acknowledging that another rate increase could still become necessary.
These differing views highlight the uncertainty surrounding the ECB's next policy decision and contrast with the comparatively unified message currently emerging from Federal Reserve officials.

Technical Picture

Although EUR/USD managed to recover from Tuesday's session lows, the broader trend remains under pressure.
The US Dollar Index (DXY) continues to trade near recent highs and remains on course to record a second consecutive monthly advance. Conversely, EUR/USD is positioned to register its second straight monthly decline, underscoring the prevailing bearish sentiment toward the common currency.
Unless the upcoming US labor market data disappoints significantly or ECB officials collectively adopt a more hawkish stance, rallies in EUR/USD may continue to attract selling interest.

Outlook

The near-term outlook remains cautiously bearish for EUR/USD.
While month-end portfolio adjustments have provided temporary support for the Euro, the underlying fundamentals continue to favor the US Dollar. Strong labor market indicators, persistent inflation concerns, and increasingly hawkish Federal Reserve expectations continue to reinforce demand for the Greenback.
Meanwhile, uncertainty surrounding the ECB's future policy path and easing energy prices have reduced the urgency for additional tightening in the Eurozone, limiting the Euro's upside potential.
The next major catalysts will be this week's US employment reports. A stronger-than-expected labor market would likely reinforce expectations of prolonged Federal Reserve tightening, strengthening the Dollar further and placing renewed downward pressure on EUR/USD. Conversely, weaker employment data could trigger a reassessment of interest rate expectations, allowing the Euro to extend its recent recovery.