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EUR/USD Forecast: At an inflection points, three things to watch

  • EUR/USD has bounced back to the middle of the range and now depends on data.
  • US fiscal stimulus talks have made progress, but await a breakthrough.
  • Coronavirus fears and hopes for a vaccine are also playing a tug of war.
  • Wednesday's four-hour chart is painting a mixed picture.

The downside is denied to EUR/USD bears – but can bulls return to dominate? After topping 1.18, the world's most popular currency pair is now at crossroads – both fundamentally and technically, and fundamentally.

Here are three things to watch on a busy day:

1) Two Non-Farm Payrolls hints

President Donald Trump said a "big number" is coming in Friday's jobs report. Investors will be able to shape expectations ahead of July's Non-Farm Payrolls with a double-dose of data.

ADP's private-sector labor market report is set to show an increase of over one million jobs last month, a slower rate than in June, yet still positive. It is essential to note that America's largest payroll provider's figures have been off the mark in recent months.

See US ADP Employment Change July Preview: Following the high-frequency data

The second crucial release is the ISM Non-Manufacturing Purchasing Managers' Index – a snapshot of America's immense services sector. The headline figure is projected to remain above 50, indicating expansion, yet the employment component may steal the show. Investors would like to see if hiring has been hit by the resurgence of the virus.

ISM's Manufacturing PMI beat estimates yet the miss on the labor market gauge weighed on sentiment. Will this phenomenon repeat itself? 

See US Non-Manufacturing PMI July Preview: Second thoughts on the US economy

2) Fiscal stimulus, far away, so close?

Democrats and Republicans have reported progress in agreeing on a new relief package for the economy, but state that an accord may come only next week. The main controversy is about extending the $600/week federal top-up of unemployment benefits – essential for keeping consumption afloat. 

The overall package's size may also move markets. Republicans insisted on a cap of $1 trillion while Democrats aim for triple that sum. For investors, the more, the merrier, as any support is welcome in these dire straits. 

The US dollar has been on the back foot alongside bond yields. A larger fiscal package indicates more borrowing, and a potential increase in yields, thus lifting the greenback. A small package could send returns on US debt – and the dollar – down.

3) Coronavirus fears and hopes

America's coronavirus case-curve has been showing signs of bending lower – and markets want to see that trend confirmed. On the other hand, daily deaths jumped above 1,000 on Monday – as the "weekend effect" faded. Figures for Tuesday may go either way.

Hopes come from Novavax – a small Maryiland-based firm that announced promising results in developing a coronavirus vaccine. Subjects developed a high level of neutralizing antibodies while showing few side-effects. The firm joins a crowded race for creating immunization.

Such announcements have been cheering investors and further developments are awaited. The dollar may rise with 

Overall, euro/dollar's next moves are highly dependent on news on these three fronts.

EUR/USD Technical Analysis

Momentum on the four-hour chart has turned to the downside, yet the currency pair is still trading above the 50, 100, and 200 Simple Moving Averages while the Relative Strength Index is balanced. 

Bulls are in the lead, but bears are creeping back.

The daily high of 1.1825 is the initial resistance line, followed by 1.1850, a level that capped EUR/USD in 2018. The 2020 peak of 1.1909 and 1.20 are next.

Support awaits at 1.1780, a temporary cap on the way up, and 1.1730, a swing low last week. Critical support awaits at 1.17, which is a double-bottom, followed by 1.1625.

See Hot Summer In Markets: Gold, silver, euro, and dollar volatility explained

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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