EUR/USD, DAX 40 face increased bearish pressure as CPI fails to impress investors

European markets are trading softer on Tuesday with the major European equity indices dropping alongside the euro. Market jitters continue after Sunday’s French elections despite the initial kneejerk reaction higher at the open on Monday. The brief relief following a smaller voting percentage than expected for the far-right gas dissipated as investors focused on the political uncertainty stemming from the second round of voting this Sunday, whether it be a far-right government or a coalition between Macron’s party and the left.

Elsewhere, the Eurozone CPI data for June released on Tuesday morning brought some small relief to investors as it showed a return to disinflation after the unexpected rise in May. Headline CPI came in at 2.5% and core at 2.8%, both in line with expectations. But the services sector remains a problem with a monthly rise of 0.6% and YoY growth unchanged at 4.1%, the highest level in 2024. The data proves that the drop in energy prices continues to be a big driver in the disinflation process, allowing markets to price in another possible rate cut from the European Central Bank (ECB) in September. 

Source: refinitiv

EUR/USD has failed to capitalise on Monday’s bounce higher and the pair is back below 1.0750 and with a bearish bias. In all fairness, the confluence of moving averages around 1.0785 was bound to put downward pressure on the pair and it was highly unlikely that buyers would find enough courage to push past it in the first go. This area remains the key resistance blocking any further bullish momentum. As the RSI remains below 50, the path of least resistance for EUR/USD continues to be lower.

EUR/USD daily chart

_{Past performance is not a reliable indicator of future results.}

Meanwhile, the DAX 40 is dropping 1.5% on Tuesday breaking below its 100-day simple moving average (SMA) for the first time since November. This is significant as this level has acted as support for the past two weeks by limiting the downside momentum. This RSI has also been rejected at the mid-line after the attempted rebound on Monday, which puts further downside pressure on the price. The German index is now threatening to drop below 18,000 at which point the area between 17,966 and 17,400 has offered support in the past few months. 

DAX 40 daily chart

_{Past performance is not a reliable indicator of future results.}