EUR/USD Forecast: Bulls keep adding longs despite the risk-off mood

EUR/USD Current Price: 1.0732

• The S&P Global PMIs hinted at an economic slowdown in Europe and the US.
• ECB officials keep paving the way for a 50 bps rate hike in July.
• EUR/USD is overbought in the near term but has room to extend its gains.

The EUR/USD pair trades near a fresh weekly high of 1.0748, underpinned by comments from the European Central Bank officials. Following President Christine Lagarde’s words hinting at a rate hike as soon as July, other ECB members such as Martin Kazaks and Robert Holzmann vowed a 50 bps hike in July. The central bank would be ending almost a decade of negative rates.

The shared currency rose despite tepid local data. S&P Global released the preliminary estimates of its May PMIs, which showed that most European indexes came in below the market’s expectations, except for the German ones, which were slightly better than the April ones. The EU services PMI came down to 56.3 from 57.7 in the previous month, while the manufacturing index printed at 54.4, below the 54.9 expected. The US S&P Global Manufacturing PMI slid to 57.5 as expected, while the services index contracted to 53.5 in the same period.

The US also released April New Home Sales, which plunged by 16.6% and the Richmond Fed Manufacturing Index, down to -9 in May from 14 in April. On Wednesday, the country will publish April Durable Goods Orders, foreseen up by a modest 0.6%. Several central banks’ leaders will hit the wires amid their appearances at the Davos Economic Forum.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair is bullish. The pair has bounced from around the 38.2% retracement of its latest daily decline at 1.0670, with the next Fibonacci resistance located at 1.0770. The daily chart shows that the pair advanced further above a flat 20 SMA, which now converges with a Fibonacci support level at 1.0545, while the longer ones maintain their bearish slopes far above the current level. The Momentum indicator eases within positive levels, but the RSI indicator keeps grinding higher, now at around 56.

The near-term picture backs a continued advance, as in the 4-hour chart, the pair is well above all of its moving averages, with the 20 SMA heading firmly north just below the 200 SMA. Technical indicators, in the meantime, head mildly higher in extreme overbought readings, without signs of bullish exhaustion.

Support levels: 1.710 1.0670 1.0615  

Resistance levels: 1.0770 1.0810 1.0855

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