EUR/USD Forecast: Euro set to rally on newfound ECB hawkishness, bullish technical setup


  • EUR/USD has slipped back to 1.18 in end-of-month adjustments. 
  • ECB intentions to taper bond buys and prevailing Fed-fueled optimism may send the pair higher. 
  • Wednesday's four-hour chart is painting a bullish picture for the pair.

Is September tapering coming? That has been the question markets have been asking about the US Federal Reserve – but the focus now shifts toward the European Central Bank. That could be favorable for EUR/USD bulls. 

Tuesday's trading session was choppy due to end-of-month flows, sending the world's most popular currency pair up and then down as money managers' adjusted their portfolios. Choppy trading seemed to mask a significant development – eurozone inflation is rising and ECB hawks are taking notice. 

The headline Consumer Price Index for August hit 3% YoY and Core CPI reached 1.6% in the preliminary read for August, both above estimates. Higher inflation has reached the old continent and prompted both Klaas Knot and Robert Holzmann of the ECB to suggest the bank should reduce its bond-buying scheme.

The Frankfurt-based institution is buying some €20 billion worth of bonds every week and these remarks triggered a sell-off in German sovereign debt, as well as that of other countries. Will higher yields push the euro higher? Not all on the ECB's Governing Council seem worried about inflation, with Vice President Luis de Guindos coming on Wednesday to project price rises will decelerate. 

Nevertheless, a hawkish shift in ECB policy is now in play for next week's decision, and that is a novelty.

Where does the Fed stand? Five days after Chair Jerome Powell's relatively dovish speech at the virtual Jackson Hole Symposium, there is still some pressure on the dollar. The bank convenes later in September but Friday's Nonfarm Payrolls report is already on traders' minds. Ahead of that release, Wednesday's economic calendar features two significant clues.

ADP, America's largest payrolls provider, publishes its report for private sector employment later in the day, with estimates standing at an increase of over 600,000 positions. Correlation with official labor statistics is mixed, but the publication impacts markets. 

The ISM Manufacturing Purchasing Managers' Index may have a substantial impact this time – as the Services PMI is released only after the NFP. Economists expect a moderate decline in both the headline and the all-important employment component. This publication may risk the euro rally. 

ISM Manufacturing PMI Preview: Why it could be the trigger for a big greenback comeback

Overall, there is room for euro/dollar to resume its gains, yet US data poses a risk.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) on the four-hour chart has dropped back below 70, thus exiting overbought conditions and allowing for more gains. EUR/USD continues benefiting from upside momentum and trades above the 50, 100 and 200 Simple Moving Averages. All in all, bulls are in control.

Some resistance is at the daily high of 1.1813, followed by 1.1830 and 1.1845, the latter being Tuesday's peak. Further above, 1.1860 and 1.1910 are eyed.

Critical support awaits at 1.1780, which capped EUR/USD and later served as support. It is also where the 200 SMA hits the price. Further down, 1.1740, 1.1725 and 1.1695 are eyed. 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD advances toward 1.1200 on renewed US Dollar weakness

EUR/USD advances toward 1.1200 on renewed US Dollar weakness

EUR/USD is extending gains toward 1.1200 on Friday, finding fresh demand near 1.1150. Risk sentiment improves and weighs on the US Dollar, allowing the pair to regain traction. The Greenback also reels from the pain of the dovish Fed outlook, with Fedspeak back on tap. 

EUR/USD News
Gold hits new highs on expectations of global cuts to interest rates

Gold hits new highs on expectations of global cuts to interest rates

Gold (XAU/USD) breaks to a new record high near $2,610 on Friday on heightened expectations that global central banks will follow the Federal Reserve (Fed) in easing policy and slashing interest rates. 

Gold News
USD/JPY recovers to 143.00 area during BoJ Governor Ueda's presser

USD/JPY recovers to 143.00 area during BoJ Governor Ueda's presser

USD/JPY stages a recovery toward 143.00 in the European morning following the initial pullback seen after the BoJ's decision to maintain status quo. In the post-meeting press conference, Governor Ueda reiterated that they will adjust the degree of easing if needed.

USD/JPY News
Shiba Inu is poised for a rally as price action and on-chain metrics signal bullish momentum

Shiba Inu is poised for a rally as price action and on-chain metrics signal bullish momentum

Shiba Inu remains strong on Friday after breaking above a symmetrical triangle pattern on Thursday. This breakout signals bullish momentum, further bolstered by a rise in daily new transactions that suggests a potential rally in the coming days.

Read more
Bank of Japan set to keep rates on hold after July’s hike shocked markets

Bank of Japan set to keep rates on hold after July’s hike shocked markets

The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session. 

Read more
Moneta Markets review 2024: All you need to know

Moneta Markets review 2024: All you need to know

VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.

Read More

Majors

Cryptocurrencies

Signatures