EUR/USD Forecast: Buyers to return on near-term dips

EUR/USD Current price: 1.0876

• Better than anticipated United States Retail Sales gave fresh impetus to the US Dollar.
• Market players keep beating on a Federal Reserve rate cut in September.
• EUR/USD in a corrective slide, needs to pierce 1.0800 to turn bearish.

The EUR/USD pair traded with a soft tone just below the 1.0900 level throughout the first half of the day,  confined to a tight range ahead of some relevant United States (US) macroeconomic figures. Optimism cooled down a bit, although demand for the US Dollar remained subdued.

Meanwhile, a mixed German ZEW Survey limited the Euro’s progress. The Survey showed Economic Sentiment in the country dropped to 41.8 in July from 47.5 in June, also missing expectations. The Eurozone index was also worse than anticipated, declining to 41.8. On a positive note, the assessment of the current situation in Germany improved to -68.9 from the previous -73.8, better than expected.

Ahead of Wall Street’s opening, government bond yields remain depressed amid resurgent bets the Federal Reserve (Fed) will start cutting interest rates in September, following some comments from Chairman Jerome Powell that could be understood as dovish.  Powell noted easing inflation in the second quarter of the year and added that an unexpected weakening in labor market would merit a reaction from policymakers. Nevertheless, he refused to provide clear answers about upcoming rate cuts, repeating decisions will be made meeting by meeting.

The EUR/USD turned south with the release of US data. Retail Sales stayed unchanged in June as expected, although the core reading, Retail Sales Control Group, improved to 0.9% from 0.4% in May.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair retains the bullish tone, although a corrective decline is on the table. In the daily chart, the pair remains above all its moving averages, with the 20 Simple Moving Average (SMA) heading firmly north, although below directionless 100 and 200 SMAs. Technical indicators, in the meantime, remain well above their midlines, albeit the Relative Strength Index (RSI) indicator retreats modestly from near overbought readings. Overall, the risk of a sustained slide remains contained.

The 4-hour chart supports the case for a near-term bearish extension. The EUR/USD pair accelerated south after piercing a now marginally bullish 20 SMA, while technical indicators turned sharply lower and are currently testing their midlines from above. The pair approaches the immediate support area at 1.0870 and needs to find buyers ahead of the 1.0800 threshold to retain the positive tone.

Support levels: 1.0870 1.0835 1.0790

Resistance levels: 1.0940 1.0990 1.1020