EUR/USD Forecast: On the verge of losing critical support after failing to rise on upbeat news

EUR/USD has been edging lower despite reports about a US-Sino trade truce.
German inflation and US GDP figures are eyed by markets.
Thursday's four-hour chart shows a loss of momentum as EUR/USD stands above critical support.

Yohay Elam FXStreet

EUR/USD's weakness has been exposed. The US and China have reportedly agreed to refrain from slapping tariffs while they negotiate a trade deal. This is what Presidents Donald Trump and Xi Jinping may agree to on their summit early on Saturday in Osaka, Japan.

Yet while commodity currencies are rising alongside stock markets – EUR/USD seems unable to advance. A currency pair that is unable to advance in response to positive news may fall when the news is only OK or plunge on downbeat developments.

The greenback has another reason to retreat. Goldman Sachs and other banks have lowered their forecasts for US bond yields. The dollar tends to retreat when the return on long-term treasuries declines. Banks are reacting to the upcoming rate cut by the Fed due in late July.

Mary C. Daly, President of the San Francisco branch of the Federal Reserve, has said that she is watching upcoming data in order to determine her position regarding the upcoming rate decision – echoing the words of Fed Chair Jerome Powell.

The euro faces a test at home – German inflation data. The European Central Bank is also ready to cut interest rates if the inflation remains subdued, and data from the continent's largest economy has a substantial impact on the euro zone's inflation level.

Today's most significant release is the final US Gross Domestic Product publication for the first quarter. While the robust growth rate of 3.1% annualized will likely be confirmed, investors are concerned about underlying inflation which remains depressed.

See US Q1 GDP Final Revision Preview: Look ahead not behind

Overall, markets are eyeing headlines related to the Trump-Xi summit but German and US data will also move markets.

EUR/USD Technical Analysis

Momentum on the four-hour chart has turned negative after many days in positive territory. The Relative Strength Index is also losing ground but EUR/USD holds above the 50, 100, and 200 Simple Moving Averages.

Overall, the technical picture is still OK but worsening.

The world's most-popular currency is still holding above the 1.1350 level which has supported it recently and served as resistance earlier this month – a clear separator of ranges and critical support.

Further down, 1.1320 capped EUR/USD on its way up to current levels, and 1.1245 held it down beforehand. The next support line is 1.1180 which was a low point in mid-June.

Looking up, 1.1385 was a high point on Wednesday and is immediate resistance. It is followed by 1.1415 that was the peak this week and the highest since March. The next levels are 1.1445 and 1.1520.

See EUR/USD path of least resistance is down ahead of German CPI, US GDP – Confluence Detector

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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