EUR/USD Forecast: Euro needs to start using 1.0230 as support to extend rebound

EUR/USD has been struggling to gather bullish momentum despite the broad-based selling pressure surrounding the greenback and moving sideways in a narrow channel above 1.0200. The pair needs to start using 1.0230 as support in order to target 1.0300 next.

Ahead of the weekend, the dollar failed to capitalize on hot US inflation data but the uncertainty surrounding the European economic outlook made it difficult for the shared currency to capture the outflows out of the USD. Earlier in the day, the data from Germany revealed that Retail Sales contracted by 1.6% on a monthly basis in June, missing the market expectation for an increase of 0.2% by a wide margin.

Meanwhile, S&P Global Manufacturing PMI for the eurozone arrived at 49.8 for July, slightly better than the flash estimate of 49.6. Commenting on the survey, "eurozone manufacturing is sinking into an increasingly steep downturn, adding to the region’s recession risks," noted Chris Williamson, Chief Business Economist at S&P Global Market Intelligence."New orders are already falling at a pace which, excluding pandemic lockdown months, is the sharpest since the debt crisis in 2012, with worse likely to come."

Later in the session, the ISM will release the July Manufacturing PMI for the US. The headline PMI print is expected to edge lower to 52 from 53 in June. Market participants will pay close attention to Prices Paid and Employment Components. In case the report suggests that price pressures have eased in July with the Employment Index remaining below 50, the dollar could find it difficult to find demand. On the other hand, an unexpected increase in the Prices Paid Index and a rebound in manufacturing employment should limit EUR/USD's upside. 

ISM Manufacturing PMI: Dollar to dominate in duel between inflation and employment components.

EUR/USD Technical Analysis

EUR/USD was last seen trading slightly above 1.0230, where the Fibonacci 38.2% retracement level of the latest downtrend forms the upper limit of the two-week-old trading range. In case the pair manages to stabilize above that level, it could target 1.0300 (psychological level, Fibonacci 50% retracement, 200-period SMA on the four-hour chart) and 1.0370 (Fibonacci 61.8% retracement). In the meantime, the Relative Strength Index (RSI) indicator on the four-hour chart holds above 50, suggesting that sellers remain on the sidelines for the time being.

On the downside, supports are located at 1.0200 (psychological level, 50-period SMA, 20-period SMA), 1.0150 (Fibonacci 23.6% retracement, 100-period SMA) and 1.0100 (psychological level, static level).