On Wednesday, the EUR/USD pair spiked to nearly 1.1350, continuing its trend of gains for the third consecutive trading day. The major currency pair is gaining strength as the US Dollar (USD) faces strong selling pressure, driven by credit rating downgrades in the United States (US). The US Dollar Index (DXY), which measures the value of the Greenback against six other major currencies, has recovered slightly from earlier losses, but is still down 0.3% at 99.70.
This decline in the USD has been caused by the recent downgrade of the US Sovereign Credit Rating from Aa1 to Aaa by Moody’s, citing concerns over fiscal imbalances and increasing interest rate obligations. This has raised doubts about the credibility of the US Dollar. Moody’s is also worried about a potential increase in the already large debt of $36 trillion, as US President Donald Trump aims to pass a new tax bill worth $3 trillion-$5 trillion.
In addition, President Trump has been unsuccessful in convincing Republican lawmakers to support his tax bill during a closed-door meeting on Capitol Hill on Tuesday. The bill aims to fulfill Trump’s economic agenda, but Republicans have opposed it due to its provision to increase limits on deductions for state and local taxes, according to Republican Representative Mike Lawler as reported by Reuters.
In terms of economic data, investors are eagerly awaiting the preliminary S&P Global Purchasing Managers’ Index (PMI) figures for May, scheduled to be released on Thursday. The data is expected to show stable expansion in business activity overall. Investors will closely monitor comments from private sector employers to gauge whether they are expanding capacity or choosing to bear the cost of imported goods due to the White House’s tariff policy.
Federal Reserve (Fed) officials have indicated that the new economic policies implemented by President Trump could cause inflation to become de-anchored, which would discourage the central bank from lowering interest rates. On Tuesday, St. Louis Fed Bank President Alberto Musalem stated, “If inflation expectations become de-anchored, the Fed policy should prioritize price stability.” He also noted that current monetary policy is “well-positioned” as there is an unusually high level of economic policy uncertainty.
The EUR/USD pair rose to nearly 1.1350 on Wednesday, its highest level in two weeks. The short-term outlook for the pair is bullish as it is currently trading above the 20-day Exponential Moving Average (EMA) at around 1.1240. The 14-period Relative Strength Index (RSI) is fluctuating within the 40.00-60.00 range, indicating indecision among traders.
In terms of potential levels, the major resistance for the pair is the high of 1.1425 reached on April 28. On the other hand, Euro bulls will find strong support at the psychological level of 1.1000.