EUR/USD Forecast: Bearish pressure mounts

The US Dollar consolidates gains after the release of the FOMC minutes ahead of key US labor market data.
Eurozone wholesale inflation drops more than expected in June.
The EUR/USD is near relevant support; bulls need a break above 1.0910.

Matías Salord FXStreet

The EUR/USD lost ground for the second day in a row, falling below the 20-day simple moving average. A cautious tone across equity markets, higher US yields, and a stronger dollar after the FOMC minutes weighed on the pair which fell toward 1.0850.

Data from the Eurozone showed positive developments regarding inflation. The European Central Bank (ECB) Consumer Expectation showed that three-year median inflation expectations remain unchanged at 2.5%. The Producer Price Index declined to a negative annual rate of 1.5%, below the expected -1.3%. On the negative front, the final Eurozone June Services and Composite PMI were revised lower to 52.0 and 49.9, respectively. The Composite dropped below 50 for the first time since December, increasing fears of a recession. The economic figures weighed on the Euro. On Thursday, Germany will report Factory Orders, and Eurozone Retail Sales are due.

The US dollar rose across the board on Wednesday amid cautious markets and despite a softer-than-expected Factory Orders report. The Greenback consolidated gains after the FOMC minutes, which showed some members favored a rate hike at the June meeting. US yields moved further north after the minutes, with the 10-year yield reaching 4.95%, the highest level since mid-March. The focus now turns to US labor market data. On Thursday, the ADP private employment report, Jobless Claims, and JOLTS will be released, and on Friday, Nonfarm Payrolls.

EUR/USD short-term technical outlook

The outlook is turning negative for the Euro after the EUR/USD pair dropped below the 20-day SMA. Technical indicators in the daily chart point to the downside, with the Relative Strength Index (RSI) moving south and the Momentum breaking under 100.00. Together with the price below the 20-day SMA, this offers a bearish signal. The negative tone will ease if the Euro manages to post a daily close above 1.0915.

Ahead of the Asian session, the EUR/USD is testing the 1.0850 area. A break lower would increase the negative pressure, exposing last week's low at 1.0835; below, a decline to 1.0800 seems likely. On the upside, immediate resistance is located at 1.0890. However, the Euro needs to break a downtrend line currently at 1.0912 in order to negate the current bearish tone. Indicators on the 4-hour chart also favor the downside, with RSI below the midpoint but still not showing oversold conditions.

View Live Chart for the EUR/USD

Author

Matías Salord

FXStreet

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

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