EUR/USD Forecast: Looking to test bulls’ determination around 1.1000

Valeria Bednarik FXStreet

EUR/USD Current Price: 1.1048

Recession-related concerns mount after another batch of dismal macroeconomic data.
Looming central banks, decisions put financial markets in risk-off mode.
EUR/USD bearish case gains traction, aims to test critical support at 1.1000.

The EUR/USD pair extends its bearish route on Tuesday, down for a sixth consecutive day and having traded as low as 1.1038, holding nearby ahead of Wall Street’s opening. Investors are assessing dismal macroeconomic figures ahead of crucial central banks’ decisions, as aggressive monetary tightening meant to tame inflationary pressure also means a higher risk of an economic setback.

The European Central Bank (ECB) released the Bank Lending Survey ahead of its monetary policy decision next Thursday, reporting demand for credit dropped to the lowest on record since 2003. Furthermore, Germany published the July IFO survey showing Business Climate deteriorated further in the month, falling to 87.3 from 88.6. The assessment of the current situation was also tepid, although Expectations were slightly better than anticipated but shrinking from June’s reading.

Ahead of the ECB decision, the United States (US) Federal Reserve (Fed) will decide on monetary policy on Wednesday. Both central banks are expected to pull the trigger and hike 25 basis points (bps) each. Such announcements will likely have a limited impact on financial markets, as the movements are entirely anticipated. More relevantly, the focus will be on what will come next. Hawkish announcements can have a negative impact on its respective currency, as it would lift the risk of a soon-to-come recession.

Speculative interest will hardly have time to breathe in the meantime, as over the upcoming days, the US and Germany will also release the first estimate of the Q2 Gross Domestic Product (GDP), while both countries will post inflation updates.

Later today, the macroeconomic calendar will offer US CB Consumer Confidence, foreseen at 112.1 in July after printing at 109.7 in June, and housing-related data.

EUR/USD short-term technical outlook

The EUR/USD pair is trading just below the 50% Fibonacci retracement of the 1.0833/1.1275 rally at 1.1055, while the critical 38.2% retracement stands at 1.1105. In the daily chart, the pair barely holds above a still bullish 20 Simple Moving Average (SMA), which develops well above the longer ones. The Momentum indicator holds directionless within positive levels amid a limited intraday range, but the Relative Strength Index (RSI) indicator heads south at around 51, skewing the risk to the downside.

Technical readings in the 4-hour chart favor a downward extension towards the 1.1000 price zone, a static support level. It is worth noting that the 61.8% retracement of the aforementioned rally is located at 1.1005, meaning a break through the area would likely spur accelerated selling. Meanwhile, EUR/USD broke below its 100 SMA, while the 20 SMA gains bearish traction above the longer one. Finally, technical indicators resumed their slides, with the RSI currently at around 27 without signs of bearish exhaustion. At this point, the pair would need to recover above 1.1105 for bulls to regain their confidence.

Support levels: 1.1005 1.0965 1.0920

Resistance levels: 1.1105 1.1150 1.1200

View Live Chart for the EUR/USD

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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