EUR/USD Forecast: Challenging the 1.1000 mark as US Dollar sell-off intensifies

EUR/USD Current price: 1.0985

• United States Treasury yields collapsed amid speculation of an out-of-schedule rate cut.
• Mounting tensions in the Middle East fueled risk-aversion and further hurt the US Dollar.
• EUR/USD tests the 1.1000 mark, more gains likely despite extremely overbought conditions.

The EUR/USD pair trades at fresh multi-month highs near the 1.1000 mark in a chaotic start to the week. Concerns about the state of the United States (US) economy hit hard the US Dollar as market players increased bets on an out-of-schedule rate cut from the Federal Reserve (Fed) as soon as next week. It seems a bit overstretched, but as expected last week, financial markets are all about sentiment and will likely remain so in the upcoming days.

Adding fuel to the fire, weekend news showed increased tensions in the Middle East. Israel responded to the latest Hamas attack and air-striked Gaza, killing at least 30 people, while Hamas’s political leader, Ismail Haniyeh, was killed in Tehran. Fears of an escalating war in the region as Iran vowed retaliation further fueled the dismal mood.

The US Dollar trades mixed, under strong selling pressure against European rivals and safe-haven currencies, but firmer against Gold amid plummeting Treasury yields, with the 10-year note offering as low as 3.67% ahead of Wall Street’s opening, a fresh 52-week low. Yields on the 2-year note also plummeted and practically match the 10-year ones.

Data-wise, the Hamburg Commercial Bank (HBOC) published the final estimates of the July PMIs for the Eurozone, with the EU Composite PMI upwardly revised to 50.2, slightly better than the previous 50.1. Additionally, the Producer Price Index (PPI) fell 3.2% YoY in June, while it rose 0.5% MoM. The readings were higher than expected but far from concerning.

The American session will bring the final July US S&P Global Services PMI and the official ISM report on non-manufacturing output.

EUR/USD short-term technical outlook

The EUR/USD pair is sharply up for a second consecutive day and poised to extend its advance. In the daily chart, the pair has run beyond all its moving averages, while the 20 Simple Moving Average (SMA) gains upward momentum above the longer ones, yet over 100 pips below the current level. Technical indicators, in the meantime, head north within positive levels, far from reaching overbought readings and without signs of upward exhaustion.

In the near term, and according to the 4-hour chart, the bullish momentum remains strong despite technical indicators standing at extreme overbought levels. At the same time, the 20 SMA heads firmly north above the 200 SMA, although still below a pretty much flat 100 SMA. Overall, EUR/USD seems poised to storm through the 1.1000 figure in the upcoming sessions.

Support levels: 1.0960 1.0915 1.0875

Resistance levels: 1.1005 1.1040 1.1085