EUR/USD Forecast: Looking again at 1.0400

Matías Salord FXStreet

EUR/USD Current Price: 1.0446

Comments from Portugal boost the US dollar on Wednesday.
Inflation rises in Eurozone, despite a slowdown in Germany.
EUR/USD outlook turns bearish, euro to remain under pressure while under 1.0470.

The EUR/USD pair dropped for the second day in a row, falling below 1.0450 by the second half of the American session. The US dollar resumed its advance amid a decline in equity prices and following comments from central bankers. Inflation and recession-related concerns continue to undermine market’s mood. The peak at 1.0605 on Monday looks far away as attention turns again to the YTD lows.

Speakers at the Central Banking Forum organized by the European Central Bank (ECB) in Portugal highlight the risk of inflation expectations de-anchoring. Fed’s Powell sounded optimistic regarding the US economy suggesting monetary tightening could bring down inflation while sustaining a solid labor market. Cleveland Fed President Mester said she would support another 75 bps rate hike in July if economic conditions stay the same. US yields move lower, with the 10-year reaching 3.11%, a five-day low.

ECB President Lagarde said it is unlikely to go back to an environment of low inflation and warned inflation expectations are much higher than before. Data released on Wednesday showed a slowdown in inflation in Germany, with the HCPI easing to 8.2% from 8.7%, mostly due to cuts in fuel taxes and public transportation. Spain and Belgium reported new highs. Eurozone CPI is expected to remain above 8% (preliminary data due on Friday). In the US, Q1 GDP contracted more than initially reported on a downward revision to personal consumption.

On Thursday, data to be released includes China’s PMI. In Europe, German retail sales of May, Eurozone unemployment of June and France will report inflation. In the US, the economic calendar includes personal income and spending numbers that contain the Core PCE, an inflation gauge closely followed by the Fed. Also, the weekly Jobless Claims and the Chicago PMI.

EUR/USD short-term technical outlook

The outlook for the EUR/USD turned more bearish after the break under 1.0500 and particularly while holding under 1.0470. Price could not recover 1.0600 and also failed to hold the 20-day Simple Moving Average (SMA), currently at 1.0566. The 55-day SMA awaits at 1.0600, making that area the level to break to unleash bullish potential.

In the near term, the 4-hour chart is bearish, with the price under key MAs and the Momentum pointing sought. The RSI is at the 30, suggesting probably some consolidation before another leg lower. The euro needs to recover above 1.0480 to alleviate the bearish pressure. Under 1.0440, a test of 1.0400 seems likely. Below, attention would turn to the YTD low and the double bottom around 1.0350.

Support levels: 1.0440 1.0400 1.0380

Resistance levels: 1.0490 1.0540 1.0580

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Author

Matías Salord

FXStreet

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

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