EUR/USD Forecast: Limited bullish potential in a risk-averse environment

EUR/USD Current price: 1.0853

• Eurozone PMI data came in worse-than-anticipated, indicating stagnation.
• Stock markets turned south amid disappointing earning reports.
• EUR/USD bounced from fresh weekly lows, bullish potential limited.

The EUR/USD pair extended its slide to 1.0824 on Wednesday, finally finding buyers in the area. The pair bounced towards the current 1.0850 price zone as the US Dollar came under modest selling pressure. Still, the Euro’s recovery has been limited by softer-than-anticipated local data.

“Provisional PMI survey data signalled a near-stagnation of the eurozone private sector during July as the currency bloc’s,” according to the Hamburg Commercial Bank (HCOB). The Eurozone Manufacturing Purchasing Manager Index (PMI) resulted at 45.6 in July, down from the previous 45.8. The services Index eased to 51.9, while the Composite PMI barely held in expansionary territory, easing from 50.9 in June to 50.1.

Meanwhile, stock markets turned south amid weaker-than-anticipated earning reports spurring concerns about economic progress. Wall Street is poised to open in the red as another batch of big names prepares to announce results.

Data-wise, the United States (US) just published MBA Mortgages Applications for the week ended July 19, which declined by 2.2%. Also, June Wholesale Inventories stood at 0.2% in June, according to preliminary estimates, better than anticipated, while the Goods Trade Balance for the same month posted a deficit of $96.8 billion. Coming up next, the US will release June New Home Sales, while S&P Global will publish the preliminary estimates of the July PMIs.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows it trimmed most of its early losses, although it still trades in the red. Technical indicators maintain their downward slopes just above their midlines, suggesting bearish pressure continues. At the same time, a bullish 20 Simple Moving Average (SMA) provided intraday support while extending its advance beyond the 100 and 200 SMAs, somehow limiting the odds for a steeper slide.

In the near term, and according to the 4-hour chart, EUR/USD is correcting oversold conditions but far from suggesting another leg north. The pair is battling to overcome a still bullish 100 SMA, while a bearish 20 SMA heads firmly south at around 1.0870. Finally, the Momentum indicator turned higher, but remains below its 100 line, while the RSI bounced sharply from extreme readings, but stands at around 38.

Support levels: 1.0820 1.0770 1.0725

Resistance levels: 1.0870 1.0910 1.0945  

(This story was corrected on July 24 at 13:30 GMT to change "while a bearish 20 SMA heads firmly north," to the correct version: "while a bearish 20 SMA heads firmly south").