To keep things simple, let's take a look at what are the moving parts that are driving EUR/USD at the moment.
First, we have the sentiment between the Fed and ECB and while both central banks are in pause mode, it all comes down to the likelihood of either one hiking rates again and also how soon rate cuts may come into the picture. In both instances, it's all about the strength of the respective economies and in that lieu, the US is in a better spot.
As such, that is one point for the dollar.
And when you throw in rate differentials continuing to favour the greenback amid higher Treasury yields, with 2-years climbing above 5%, that's another point for the dollar just based on investor attractiveness.
Couple that with the technical momentum and the outlook on the charts in recent weeks, it's tough to argue against the dollar adding to gains - at least for the time being. The break of 1.0500 is a significant one and we might even see added downside momentum as the 100-day moving average (red line) looks to cross below the 200-day moving average (blue line) soon enough.
From the weekly chart:
There is also very little standing in the way of a further drop towards 1.0400 at least with the 50.0 Fib retracement level of the upswing from last year coming in at 1.0405 next.
So, yes, we are at the lows for the year in EUR/USD. But the selling does not look likely to abate any time soon. Not at least when the dollar continues to run hot amid higher Treasury yields, pressure on risk assets, and the fact that the US economy continues to hold up much better than Europe when trying to weigh the balance of the outlook between the Fed and ECB moving forward.
