EUR/USD Forecast: Pressure mounts as risk sentiment deteriorates
|EUR/USD Current Price: 1.0685
- German inflation eased more than anticipated in May, according to preliminary estimates.
- Concerns about the US debt-ceiling bill keep financial markets in risk-off mode.
- EUR/USD bearish case gains strength as sellers strengthen around 1.0745.
EUR/USD plunged on Wednesday as a souring mood boosted demand for the Greenback against high-yielding rivals. The pair traded as low as 1.0658 early in Europe, bouncing modestly from this level to trade at 1.0685.
Concerns are related to the United States' (US) debt-limit bill. President Joe Biden and House Speaker Kevin McCarthy clinched a deal on Sunday. On Tuesday, the House Rules Committee approved it by a slim 7-6 margin and it is now moving into Congress. Representatives from both ruling parties have expressed doubts about the bill that needs to move forward in the next 24 hours.
Chinese data released overnight further weighed on sentiment, as the official NBS Manufacturing PMI contracted to 48.8 in May from the previous 49.2. Growth in services output decelerated, although by less than anticipated, while remaining within expansion territory. The Non-Manufacturing PMI printed at 54.5.
The European session brought the preliminary estimate of the German Harmonized Index of Consumer Prices (HICP) for May. Annual inflation in the country rose 6.3%, sharply easing from the previous 7.6% and below the expected 6.8%. The core annual HICP came in at 6.1%, below April's 7.2%. Spanish HICP released on Tuesday was also below expectations, hinting at easing price pressures in the Eurozone. The Union will release its own preliminary estimate for the mentioned period on Thursday.
The United States will later publish the May Chicago Purchasing Managers' Index and April JOLTS Job Openings survey. Additionally, a couple of Federal Reserve (Fed) officials will hit the wires. The Fed will have its next monetary policy meeting in two weeks, and speculative interest will try to take clues from members ahead of the event.
EUR/USD short-term technical outlook
The EUR/USD pair maintains its bearish trend and is poised to continue falling. The daily chart shows sellers continue to defend the upside at around 1.0745, the 61.8% Fibonacci retracement of the 2022 yearly decline. At the same time, the 20 Simple Moving Average (SMA) accelerated its slide well above the current level and aims to cross below a flat 100 SMA. Finally, technical indicators remain within negative levels, with the Momentum lacking directional strength, but the Relative Strength Index (RSI) is resuming its slide and currently approaching its 30 level.
The risk skews to the downside also in the near term and despite the latest bounce. The pair trades below all its moving averages, maintaining firmly bearish slopes. At the same time, technical indicators remain within negative levels, with the RSI barely bouncing from oversold readings but without enough strength to confirm another leg north. The market needs upbeat news to move against the Greenback, while EUR/USD needs to recover well above 1.0745 to regain its bullish potential.
Support levels: 1.0660 1.0620 1.0575
Resistance levels: 1.0700 1.0745 1.0790
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