EUR/USD Forecast: Pressure mounts ahead of US CPI, Fed’s decision

EUR/USD Current price: 1.0736

• Asian and European shares edged lower, reflecting the sour market mood.
• European Central Bank officials maintain the hawkish stance after trimming rates.
• EUR/USD is technically bearish and en route to pierce the 1.0700 mark.

The EUR/USD pair trades near a fresh one-month low of  1.0723. The market mood remains sour, as reflected by the poor performance of equities. Wall Street managed to post modest gains on the first day of the week, but its Asian and European counterparts turned south. Chinese shares led the decline at the beginning of the day amid resurgent concerns about the real estate market and a sharp decline in metal-related shares.

The poor mood keeps backing demand for the US Dollar, albeit gains are limited ahead of critical events scheduled for Wednesday. The United States (US) will start the day by publishing the May Consumer Price Index (CPI) report, while later in the day, the Federal Open Market Committee (FOMC) will announce its decision on monetary policy. The FOMC will also deliver fresh economic forecasts through the Summary of Economic Projections (SEP).

Meanwhile, European Central Bank (ECB) policymaker Francois Villeroy de Galhau said that the ECB’s June rate cut marked a “decisive orientation,” adding that policymakers remain confident they will bring inflation to the 2% target by 2025. Also, ECB’s Government Council member Gedimias Simkus said it is too early to declare victory over inflation but noted that they could trim interest rates further if they are sure the 2% goal will be met.

Data-wise, the US published the NFIB Business Optimism Index, which improved in May to 90.5, beating expectations of 89.8. The macroeconomic calendar has nothing relevant to offer in the upcoming session, although another ECB speaker, Vice-Chair of the Supervisory Board Frank Elderson, is scheduled to speak in the American session.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair is at risk of falling further. The daily chart shows the pair keeps trading below all its moving averages, with a flat 200 Simple Moving Average (SMA) providing dynamic resistance in the 1.0790 price zone. At the same time, the 20 SMA turned lower, in line with the increased selling interest, remaining above the 100 and 200 SMA. Finally, the Momentum indicator has stabilized within negative levels, as EUR/USD holds above its recent low, although the Relative Strength Index (RSI) indicator keeps heading south, currently at around 40.

In the near term, EUR/USD bearish potential is even clearer. The 4-hour chart shows technical indicators heading firmly lower within oversold readings as the pair extends its slide below all its moving averages. The 20 SMA gained downward momentum after crossing below the 100 SMA and is about to extend its slide below the 200 SMA, reflecting sellers’ strength.

Support levels: 1.0695 1.0650 1.0610

Resistance levels: 1.0790 1.0840 1.0885