The euro-dollar pair began the trading week rather calmly, with buyers holding above the resistance level of 1.1710 (the Tenkan-sen line on the H4 chart). However, they are in no hurry to test the next price barrier at 1.1750 (the upper line of the Bollinger Bands on the D1 timeframe).

Risk appetite remains prevalent in the market despite relative calm in the Middle East and relatively strong data from China, published during the Asian session on Monday. On the other side of the scale was Germany's retail sales report, the key components of which were in the red. At the same time, the dollar reacted negatively (albeit moderately) to news that the "One Big Beautiful Bill," which proposes tax cuts and reductions in social spending, overcame a key procedural hurdle in the U.S. Senate.

China's Supportive Data and Germany's Disappointing Stats

Let's start with the news from China. The manufacturing PMI index published on Monday came out slightly better than expected, although it remained in contraction territory. It was forecast at 49.6 but printed at 49.7. The increase is slight, but the trend is noteworthy: the index has grown for the second consecutive month, approaching the "dividing line" of 50.0. The non-manufacturing PMI also exceeded expectations, as it was forecast to remain at May's level of 50.3 but came in at 50.5.

This data from China indirectly supported the euro due to increased demand for risk assets. However, German reports disappointed EUR/USD buyers, causing the bullish momentum to fade just as it had started. Retail sales in Germany fell by 1.6% month-over-month (vs. expected +0.5%). Year-over-year, the figure rose by 1.6%, below the 3.3% forecast and the previous 4.6% increase. Germany's import price index also came out in the red, at -0.7% month-over-month (vs. a forecast of -0.3%) and -1.1% year-over-year (vs. a forecast of -0.8%). The headline CPI slowed to 2.0% y/y, as did the harmonized CPI (also 2.0%).

Despite pressure from German data, EUR/USD long positions remain in favor, primarily due to the broader weakness of the U.S. dollar.

Reasons Behind Dollar Weakness

The dollar is weakening for two main reasons: first, growing dovish sentiment, and second, rising concerns over the fiscal health of the United States. As is known, the U.S. Senate voted on Saturday to begin debate on Donald Trump's bill, which includes tax relief and cuts to social programs. The bill was not received with enthusiasm — the procedural decision hung by a thread, and the discussion dragged on for over three hours. Hesitant Republicans had to be persuaded personally by U.S. Vice President J.D. Vance, who came to Congress to lobby for Trump's key legislative initiative. In the end, he failed to convince all members of his party (two Republicans voted against), but the bill still cleared the first hurdle in the Senate. A total of 51 senators voted in favor. Debate and amendments will now begin. The "One Big Beautiful Bill" has taken one more step toward becoming law.

On the one hand, the bill is intended to stimulate economic growth. On the other hand, markets view its progress negatively, as it would add more than $3.8 trillion to the federal deficit over the next decade. Concerns over the sustainability of U.S. debt and credit quality are weighing on the dollar — especially after the U.S. definitively lost its pristine AAA credit rating. The top rating agencies (Fitch Ratings and S&P) downgraded U.S. debt in 2011 and 2023, respectively, and in May of this year, Moody's joined them.

In this context, Saturday's Senate decision is a negative fundamental factor for the dollar rather than a supportive one.

Dovish Federal Reserve Expectations

In addition, dovish expectations about the Fed's future actions continue to grow. Traders are almost certain that the Fed will maintain the status quo in July but are equally confident that it will begin easing monetary policy in early autumn. According to CME's FedWatch Tool, the probability of a rate cut next month is 20%, while the likelihood of a cut in September is 93%. The chance of a 25-basis-point cut stands at 74% and a 50-basis-point cut at 19%.

Against this backdrop, the dollar index continues to trade under pressure (within the 96 range), while the EUR/USD pair remains above the resistance level of 1.1710. The first bullish target is located at 1.1750 (upper line of Bollinger Bands on the daily chart), while the primary target remains at 1.1800 (upper line of Bollinger Bands on the weekly chart).