EUR/USD Forecast: Holding on to gains and poised to break higher

EUR/USD Current Price: 1.0350

• The US Producer Price Index shank by more than anticipated in July, to 9.8% YoY.
• Wall Street is set to open firmly higher and extend its Wednesday rally.
• The EUR/USD pair has its bullish potential intact but needs to clear 1.0360.

The American dollar remains on the back foot across the FX board as market players keep cheering easing US inflation. The EUR/USD pair traded as low as 1.0274 but quickly recovered the 1.0300 mark, now changing hands at around 1.0350, not far from the post-US CPI high at 1.0368.

Ahead of Wall Street’s opening, the US released the July Producer Price Index, which contracted to 9.8% YoY, below the previous 11.3%. The monthly reading was down by 0.5%, much better than the 0.2% increase expected. Additionally, Initial Jobless Claims for the week ended August 5 resulted at 262K, slightly better than the 263K expected. Further signs of easing inflationary pressures boosted optimism to the detriment of the greenback.

Meanwhile, European indexes struggle to post advances, hovering a handful of points below their opening levels. On the other hand, US indexes have extended their Wednesday advances and are poised to open at fresh one-month highs. Finally, US government bond yields are hovering around their opening levels, with the yield curve still inverted but shrinking from the 20-year record posted following the release of the US Consumer Price Index.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair is poised to extend its advance, particularly on a clear break above 1.0360, the 61.8% retracement of the 1.0614/0.9951 slump. The daily chart shows that the 20 SMA continues to advance, now converging with the 38.2% retracement of the mentioned decline at 1.0205. Furthermore, technical indicators maintain their bullish strength within positive levels, with the RSI at its highest since last May.

In the near term, and according to the 4-hour chart, the risk is skewed to the upside, although the momentum seems limited. The pair develops above all of its moving averages, with the 20 SMA advancing above the longer ones, reflecting increasing buying interest. Technical indicators, in the meantime, consolidate near overbought readings, lacking directional strength.

Support levels: 1.0280 1.0240 1.0205

Resistance levels: 1.0360 1.0395 1.0440

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