EUR/USD Forecast: Room for extra recovery… ahead of extra losses

EUR/USD is prolonging the upside momentum sparked at the end of last week and is approaching the key 1.1200 mark on Monday, as market participants continue to adjust to the probability of a rate cut by the Federal Reserve in the not-so-distant future. This scenario is propped up by the inversion of the US yield curve, while the absence of traction in inflation figures and some weakness seen in recent indicators have been also collaborating with this view.

In addition, recent threats from President Trump to impose tariffs on all of US imports from Mexico have added concerns to the prospects of a global slowdown, at the same time sustaining the rally in bonds and dragging global yields to fresh lows.

This upbeat note surrounding the European currency should be transitory, however, as a move on rates appears quite distant in the Fed’s horizon, as per recent Fedspeak, and on the back of solid labour market, temporary lack of upside traction in consumer prices and still healthy economy. If we add the safe haven appeal of the buck, broad G10 central banks’ dovish tilt vs. the Fed, weakness in US rival economies and the status of global reserve currency, it all signals a continuation of the constructive outlook on the greenback.

In the technical universe, the 55-day SMA at 1.1220 emerges as the immediate target in case EUR/USD gains further upside momentum. This important area of resistance is reinforced by a Fibo retracement of the 2019 drop as well as May’s peaks. However, while the 8-month resistance line continues to cap the upside, another test of the 1.1100 neighbourhood should remain well on the cards in the near to medium term.