EUR/USD Forecast: Bears on pause, but not out of the picture

EUR/USD Current Price: 1.0735

• Easing Spanish inflation hints at decreasing price pressures in the EU.
• US CB Consumer Confidence expected to deteriorate in May to 99.1.
• EUR/USD bounced from a fresh two-month low, further gains unclear.

The EUR/USD pair is up Tuesday as financial markets return from the long weekend. The US Dollar maintained its strength throughout the Asian session, pushing the pair down to 1.0671, its lowest in over two months. However, the pair changed course in Europe and trades near its daily high of 1.0746.

Mounting hopes that the United States (US) would avoid a default amid the proposal to suspend the debt limit put pressure on the safe-haven USD. Congress is still to pass a bill on the matter, with the House Rules Committee set to discuss it today. If approved, the bill will then move to the House, where lawmakers are expected to vote on it on Wednesday.

Data-wise, the macroeconomic calendar has been quite busy today and still has some relevant figures to offer. The Spanish Harmonized Index of Consumer Prices (HICP) rose by 2.9% YoY in May, decreasing from the previous 3.8% and below the 3.4% expected. The numbers may not directly impact the Euro but hint at decreasing price pressures in the Eurozone, where the Economic Sentiment Indicator for May contracted to 96.5, worse than anticipated. The American session will bring US CB Consumer Confidence, foreseen in May at 99.1, declining from 103.1 in April.  

Meanwhile, stock markets trade mixed. Most European indexes hold in the green, reflecting a better market mood. Still, US futures are mixed, with the Dow Jones Industrial Average operating with modest losses. Government bond yields, on the other hand, are in retreat mode, in line with the broad US Dollar weakness.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD shows that the pair has limited upward strength. It is currently struggling to overcome a critical level, the 61.8% retracement of the 2022 yearly slump at 1.0745. At the same time, the pair keeps developing below its 20 and 100 Simple Moving Averages (SMAs), with the shorter one extending its bearish slope, usually reflecting bears’ dominance. Finally, technical indicators remain near oversold readings lacking directional strength, a sign of absent buying interest.

The bullish potential also seems limited in the near term, according to the 4-hour chart. EUR/USD is developing a few pips above a flat 20 SMA while the longer moving averages maintain their bearish slopes well above the current level. Technical indicators, in the meantime, aim firmly north but remain within negative levels. The recovery underway could well be a corrective advance, and if the pair is unable to clear the current price zone,  it will likely resume its decline.

Support levels: 1.0700 1.0660 1.0620

Resistance levels: 1.0745 1.0790 1.0840   

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