EUR/USD Forecast: Optimism limits US Dollar demand
|EUR/USD Current Price: 1.1020
- Optimism maintains the Euro afloat amid signs of cooling global inflation.
- Investors will be focusing on the United States employment data this week.
- EUR/USD could resume its decline if sellers push it through the 1.1000 psychological support.
The EUR/USD pair is in recovery mode for a second consecutive day, trading near an intraday high of 1.1039. Optimism rules financial markets following encouraging inflation-related figures. The United States (US) reported last Friday that the core Personal Consumption Expenditures (PCE) Price Index rose 4.1% from a year earlier in June, the lowest annual increase since September 2021, and below the 4.2% expected. The monthly increase was 0.2%, as anticipated.
On Monday, the Eurozone reported that the Harmonized Index of Consumer Prices (HICP) declined by 0.1% MoM in July, according to preliminary estimates. The annual reading met expectations by printing 5.3%, contracting from the previous 5.5%. The core yearly HICP, however, held steady at 5.5%, missing the 5.4% expected. The EU also published the preliminary estimate of the Q2 Gross Domestic Product (GDP), which showed the economy expanded by 0.3% in the three months to June, improving from the previous -0.1% and above the 0.2% anticipated by market players.
Cooling inflation hints at a soft landing instead of a steep recession, boosting the market mood. Asian shares edged higher, following Wall Street's lead from last week, although European indexes are mixed, stuck around their opening levels. In the meantime, government bond yields tick lower, in line with the better sentiment.
The US calendar includes minor figures, as the country will publish the Chicago Purchasing Managers' Index and the Dallas Fed Manufacturing Business Index, both for July. Attention, however, will be on US employment data this week, as the country will release multiple figures ahead of the Nonfarm Payrolls report (NFP) next Friday.
EUR/USD short-term technical outlook
From a technical point of view, the EUR/USD pair's bullish potential seems limited. The daily chart shows that technical indicators remain directionless just above their midlines, lacking clear directional strength. At the same time, the pair remains below a still bullish 20 Simple Moving Average (SMA), currently at around 1.1065. A more sustained recovery could occur if the pair breaks above the latter with some momentum. On a positive note, the pair is meeting buyers around the 61.8% Fibonacci retracement of its 1.0833/1.1275 rally at around 1.1000.
Near term, the 4-hour chart shows that the risk skews to the downside. Technical indicators remain within negative levels, with modest bearish slopes. Furthermore, a bearish 20 SMA contains buyers while gaining downward traction far below the 100 SMA. Finally, the 200 SMA heads marginally higher, converging with the aforementioned Fibonacci support, reinforcing the 1.1000 psychological threshold.
Support levels: 1.1000 1.0965 1.0920
Resistance levels: 1.1065 1.1105 1.1150
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