EUR/USD Pair Dips as US Doll. Gains Momentum on Market Sentiment

On Tuesday, the EUR/USD pair declined to 1.0891 due to a negative market sentiment that supported the US Dollar. The financial markets grappled with new concerns regarding China's economic health following a 10 basis points cut in key interest rates by the local central bank. The People's Bank of China (PBoC) reduced the one-year loan prime rate to 3.55% and the five-year loan prime rate to 4.2%. However, financial markets were skeptical about the effectiveness of these cuts and turned to the American currency for safety.

During London trading hours, the EUR/USD managed to regain some of its losses. Olli Rehn, a member of the European Central Bank's (ECB) Governing Council, made comments that echoed the central bank's previous message, stating that underlying inflation is gradually easing but not as desired. These hawkish remarks were expected by financial markets and did not come as a surprise.

Furthermore, the Eurozone released the April Current Account data, which showed a seasonally adjusted surplus of €4 billion, significantly lower than expected. Construction Output also fell short of expectations, declining by 0.4% month-on-month in the same month.

Positive data from the United States gave the US Dollar a final boost, with Building Permits increasing by 5.2% month-on-month in May and Housing Starts surging by 21.7%, surpassing market expectations. As a result, US indexes experienced a sharp decline, while the Greenback advanced against most major currencies.

The US Dollar maintains its strength ahead of the most important event of the week, Federal Reserve (Fed) Chairman Jerome Powell's semi-annual testimony before Congress. While Powell's prepared remarks will be released well in advance, the event includes a question-and-answer session with lawmakers. The testimony spans two days, but Powell's statements usually have the greatest impact on the markets during the initial round of questioning. From a technical analysis perspective, the possibility remains that the EUR/USD may further decline to reach a potential pullback area indicated by Fibonacci levels, followed by a fresh bullish move in line with the AB=CD pattern.