EUR/USD retests 1.14 support as dollar weakens after peak hawkish repricing

Key Facts

1The Fed delivered a hawkish surprise by projecting a rate hike this year, with markets pricing 32 bps of tightening by year-end.

2There is a 29% chance of a hike in July and a 60% probability in September per market pricing.

3The ECB maintains a tightening bias but is taking a pause at least until September to monitor economic data.

4EUR/USD is trading below the key support zone around 1.14, opening the door for a drop towards 1.10.

Amid monetary policy divergence between the Fed and the ECB, the major currency pair is retesting a critical support zone. The Fed delivered a hawkish surprise by projecting a rate hike this year, with markets pricing 32 basis points of tightening by year-end. Market-implied probabilities show a 29% chance of a hike in July and 60% in September. In contrast, the ECB maintains a tightening bias but is pausing at least until September to monitor data. According to reports, the pair is trading below the key support around 1.14, opening the door for a decline toward 1.10.

At the June 26 close, EUR/USD traded at 1.14026 with an intraday range between 1.13542 and 1.14155 (per market data). Eurozone flash PMIs for June came in below the 50 threshold, with the services index at 48.9 and the composite at 49.5, reflecting continued economic contraction and supporting the ECB's cautious stance. Meanwhile, recent minutes from the Reserve Bank of India and Canadian inflation data showed a mixed global backdrop without a direct impact on the pair.

The 1.14 level remains a pivotal zone for the pair based on the latest closing data, with the next support at 1.10 if a break occurs. Looking ahead, markets await the Fed's July meeting and the ECB's September gathering as key catalysts. Any remarks from central bank officials, especially with no major economic data releases expected in the coming days, could set the next direction for EUR/USD.