Euro continues to dip

Introduction

The Euro FX futures (6E) continue to struggle against a strengthening U.S. dollar, with price currently trading at 1.04395. The primary driver of the euro’s weakness is persistent dollar strength, fueled by hawkish Federal Reserve policy expectations and renewed investor confidence in the U.S. economy.

The euro attempted a rebound from recent 2025 lows but is now approaching resistance around 1.06305, a major level that previously acted as support. If the price fails to reclaim this zone, the outlook continues to be bearish.

Market Drivers Behind the Euro’s Weakness

U.S. Dollar Strength Dominating the FX Markets

• The U.S. dollar remains strong as investors continue to price in the Federal Reserve’s commitment to keeping interest rates elevated for longer.
• U.S. economic data has remained strong, supporting the idea that the Fed may delay rate cuts, which has put pressure on the euro.

Eurozone Economic Weakness

• Recent European economic data has pointed to slowing growth, with weak manufacturing output and declining business sentiment reinforcing expectations that the ECB may consider rate cuts before the Fed.
• The divergence between the hawkish Fed and a more dovish ECB has driven capital flows toward the dollar and away from the euro.

Global Risk Sentiment Favoring USD

• With equity markets experiencing volatility, investors have sought safety in the dollar rather than the euro, further weakening demand for the common currency.

Technical Analysis Overview

Key Resistance Zone at 1.06305

• The 1.06305 level represents a major resistance zone where price previously found support before breaking down.
• If the euro fails to reclaim this area, a rejection could lead to renewed selling pressure toward 1.031.

Support and Resistance Levels

Resistance Levels (Upside Targets)

1. 1.06305 – The key resistance zone that was previously strong support. A breakout above this level would signal a shift in momentum.
2. 1.07896 (200-day SMA) – A major long-term resistance level that aligns with previous lower highs.
3. 1.10265 – A significant supply zone where sellers have consistently stepped in.

Support Levels (Downside Risks)

1. 1.04576 (50-day SMA) – Immediate support that bulls must hold to prevent further losses.
2. 1.03125 – 1.03500 (Recent Lows) – The next major support zone, marking the lowest levels reached in the recent downtrend.

Scenarios to Watch

Bearish Case (Higher Probability – 70%)

• If the euro fails to break above 1.06305, a rejection at this resistance level could send price back toward 1.03.
• A sustained downtrend could accelerate if the dollar rally continues.

Bullish Case (Lower Probability – 30%)

• If the euro reclaims 1.06305, it could trigger a relief rally toward the 200-day SMA at 1.07896.
• A close above this level would shift the trend more bullish in the short term.

High-Probability Trade Setups

Bearish Setup (Higher Probability Trade)

• Entry: Short positions on rejection from 1.06305, targeting 1.03500.
• Stop-Loss: Above 1.06500 to limit upside risk.

Bullish Setup (Lower Probability Trade)

• Entry: Long positions on a confirmed breakout above 1.06305, targeting 1.07896.
• Stop-Loss: Below 1.06000 to manage risk.