Euro Sinks as Cheaper Energy Reduces Rate Differential

The EUR/USD pair has been trading in a narrow range of 1.1325 to 1.1450 for five weeks, with energy prices falling and equities cracking.

Cheaper energy is causing problems for the Euro, as it reduces the rate differential between Europe and the US. The European Central Bank's hawkish stance on interest rates has been driven by energy-related inflation projections, which are now being revised downward.

The American economy, on the other hand, is not affected by oil prices, with import prices running above 7% YoY due to tariffs and a passthrough chain into food and materials. The Federal Reserve's inflation problem is structural, and the July hike is still a possibility.

The pair's technical outlook remains bearish, with the daily Stochastic Relative Strength Index near 65 and rolling over. The resistance level of 1.1400 has been reached, but a break above 1.1500 would be required to change the structure.