EUR/USD rallies as Trump's attacks to the Fed boost rate-cut bets

The EUR/USD appreciates for the sixth consecutive day and is trading around the 1.1700 level, after pulling back from nearly four-year highs above 1.1750 earlier on Thursday. News reports that US President Donald Trump is considering an early announcement of the Federal Reserve (Fed) Chair Jerome Powell's successor have rattled markets and sent the US Dollar (USD) tumbling.

A report by the Wall Street Journal suggests that Trump is considering announcing the name of Jerome Powell's replacement in September or October. This would be an unusual move, as Powell ends his term next May, and would create a shadow Fed Chair and undermine the central bank's credibility.

This news comes after Powell reaffirmed his cautious tone regarding further interest rate cuts in his semiannual testimony to Congress, which triggered the umpteenth attack from President Trump, calling him "terrible" and flagging that he has "three to four" candidates to replace him.

The ongoing pressures on the US central bank, however, coupled with weak macroeconomic data and some dissenting voices within the Fed calling for less restrictive rates, have prompted investors to ramp up their bets this week. The CME Group's Fed Watch Tool shows a 24% chance of a July cut, up from 14% only one week before, while the odds for a September cut have risen to 90% from about 65% last week, adding negative pressure on the Grenback.

The US economic calendar is busy today with May's Durable Goods orders and the final reading of the first quarter's Gross Domestic Product (GDP) grabbing the focus. The highlight of the week, however, will be Friday's Personal Consumption Expenditures (PCE) Price Index. This is the Fed's inflation gauge of choice and will be observed with attention to assess Fed easing expectations.

Daily digest market movers: Doubts about Fed independence undermine the Dollar's reserve currency status

• The US Dollar has tumbled across the board as Trump's attacks on the head of the Fed undermine the credibility of the central bank and threaten the Greenback's status as the world's reserve currency. The Euro (EUR) has been one of the main beneficiaries of US Dollar weakness, with the pair appreciating nearly 2% so far this week, with no significant macroeconomic driver to support that rally.
• With geopolitical tensions out of the foreground, as the truce between Iran and Israel holds for its third day, Trump's erratic trade policy is back in focus. The July 9 deadline approaches, and there is no sign of progress on trade deals with key partners. This is another source of negative pressure for the US Dollar.
• Data released on Thursday revealed that the German GFK Consumer Sentiment Survey deteriorated to -20.3 for July from -20 in the previous month. Germans are showing an increasing willingness to save, which weighs on consumption and highlights a sentiment of economic uncertainty.
• At 12:30 GMT, the US Durable Goods Orders, an advanced gauge for manufacturing activity, are expected to have increased by 8.5% in May after a 6.3% drop in April. Excluding transportation, however, orders for all other products are seen stalled, after a 0.2% increase in the previous month. This may offset the positive impact of an upbeat headline reading.
• At the same time, the first quarter's US GDP reading is expected to confirm a 0.2% contraction in the quarter and a 3.7% year-on-year growth. The impact of these figures is expected to be minimal unless there is a significant revision of previous estimations.
• On Wednesday, Fed Chair Jerome Powell stood firm against President Trump's pressures to cut rates and reiterated that the central bank is "well-positioned to wait" on interest rate adjustments until there is more clarity about the inflationary effects of trade tariffs.
• Trump reacted, calling Powell names again and suggesting that he has narrowed down a list of candidates to replace him. Market sources have aired the names of former Fed Governor Kevin Warsh, National Economic Council director Kevin Hassett, and Treasury Secretary Scott Bessent as the best-positioned to take the job.

EUR/USD reaches overbought levels above 1.1700, some correction looks likely

EUR/USD rallies further on early Thursday trading, favoured by US Dollar weakness, and reaches the target of the previous two weeks' bullish flag formation, right above 1.1700. The fundamental context remains supportive, but the 14-period Relative Strength Index (RSI) indicator is overbought in most timeframes and looks heavily stretched on 4-hour charts. These levels are often the prelude to a consolidation or even a bearish correction.

On the downside, the pair may find support at the previous resistance area near 1.1630 (June 12, 24 highs) ahead of 1.1585 (June 24, 25 lows) and the downward sloping trendline, now at 1.1520.

Immediate resistance is at the 1.1700 area, the 127.2% Fibonacci extension of the June 10-12 rally, and above here, 1.1795, the 161,8% Fibonacci extension of the mentioned move.