EUR/USD looks south as markets scale back Fed rate cut bets

EUR/USD risks falling below key support at 1.1193 as markets seem to have scaled back expectations of Federal Reserve (Fed) rate cuts in the ovenright trade. 

The US reported a better-than-expected June retail sales data on Tuesday, alleviating fears of economic recession. As a result, the probability of a 50 basis point rate cut at July 31 now stands at 22%, compared to 26% seen before the release of the retail sales data. 

Further, the odds of two rate cuts by September and three rate cuts by the year end have dropped from 80% and 62% to 73% and 56%, according to Fed funds futures. 

Indeed, the market still expects the Fed to cut rates by 25 basis points on July 31. That move, however, has been priced in. Therefore, the US dollar could gain ground against the EUR and other majors during the day ahead. 

As of writing, EUR/USD is trading at 1.1213, having dropped 0.43% on Tuesday. 

The daily chart shows the pair has charted a bearish lower high along the resistance of the trendline connecting May 30 and June 18 lows over the last few days. Further, the 14-day relative strength index is biased bearish at 42, having faded rejection at 50.00 earlier this week. 

Hence, the pair could retest the July 9 low of 1.1193 today. A break lower would add credence to bearish lower highs pattern and open the doors for a deeper drop toward 1.1116 (May 30 low). 

Technical Levels