EUR/USD Forecast: Approaching critical technical breakout points

Valeria Bednarik FXStreet

EUR/USD Current Price: 0.9915

The EU Producer Price Index rose by 43.3% YoY in August, higher than anticipated.
Hopes that the tightening cycle is close to an end underpinned financial markets.
EUR/USD continues to advance, but there’s some way to go before bulls take definitive control.

The EUR/USD pair extended its recent recovery to trade above the 0.9900 threshold, holding on to gains heading into the US session. A better market mood keeps undermining demand for the American currency, down for a second consecutive day.

Speculative interest believes the tightening cycle may be close to an end as global rates are reaching levels that could risk recessions. Early on Tuesday, the Reserve Bank of Australia surprised financial markets by hiking the cash rate by a modest 25 bps, below the 50 bps expected, being the first to halt the ultra-aggressive quantitative tightening. Global stocks are on the run, while government bonds are also rising, driving yields lower.

Macroeconomic data, on the other hand, continues to paint a gloomy picture. The EU Producer Price Index rose by 43.3% YoY in August, largely surpassing the previous 38% and above the expected 43.2%. The US session will bring a few Federal Reserve speakers, August Factory Orders, and JOLTS Job Openings.

EUR/USD short-term technical outlook

The EUR/USD pair currently trades above the 50% retracement of its latest daily decline at 0.9685, an immediate support level. The daily chart shows that the corrective advance is still developing and, while further gains are likely, are still not confirmed. The pair is currently battling with a flat 20 SMA, while the longer moving averages maintain their bearish slopes above it. Technical indicators advance, although the Momentum remains within negative levels while the RSI battles to overcome its midline.

The next Fibonacci resistance level is at 0.9942, the 61.8% retracement of the 1.0197/0.9535 slump. Beyond it, a daily descendant trend line coming from this year's high at 1.1494 is located at around 1.0070. It would take a break above the latter to confirm a more sustained recovery in the following sessions.

In the near term, and according to the 4-hour chart, the risk skews to the upside. A firmly bullish 20 SMA keeps leading the way higher, while the pair has broken above a mildly bearish 100 SMA. At the same time, technical indicators head north well above their midlines with strong upward slopes.

Support levels: 0.9865 0.9820 0.9780

Resistance levels: 0.9940 0.9990 1.0035

View Live Chart for the EUR/USD

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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