Euro tries to recoup from five-month trough amid bearish outlook

Euro rose in European trade on Monday against a basket of major rivals amid attempts to recoup from five-month lows against the dollar, with the risk sentiment improving worldwide. 

Even as the euro currently improves, the bearish outlook remains as investors expect multiple interest rate cuts by the ECB as inflation approaches the 2% target.

The Price 

EUR/USD rose 0.3% to $1.0665, with a session-low at $1.0630, after losing 0.8% on Friday, the third loss in a row, plumbing a five-month trough at $1.0622. 

Heavy Weekly Loss

The EUR/USD pair tumbled 1.8% last week, the fourth weekly loss in five weeks, and the largest such weekly loss since September 2022 amid concerns about the interest rate gap between Europe and the US. 

The latest ECB’s policy meeting bolstered the odds of an early 0.25% interest rate cut in June, while conversely, strong US inflation data in recent data hurt the odds of such a cut by the Federal Reserve. 

Rate Gap

The current US-Eurozone interest rate gap stands at 100 basis points, and could widen to 125 basis points in June. 

Positive Sentiment 

Positive sentiment is spreading in the markets as the prospects of a full-scale war between Iran and Israel wane.

Iran launched drones and missiles towards Israeli land this week, in response to an alleged Israeli attack on the Iranian consulate in Syria. 

Iran said the military response has been done, while US President Joe Biden informed the Israeli government that the US won’t support an Israeli counterattack on Iran. 

Downward Outlook

The City Index company said the EUR/USD pair is facing a bearish outlook after piercing major supports such as $1.0795, then $1.0725. 

Their analysts now expect the pair to hit $1.06 initially, and then potentially head towards $1.05, and finally to reach October lows at $1.0448.