- The EUR/USD is on the back foot once again as the greenback sweeps the board.
- Critical events on Thursday sowed the seeds of the downfall.
- The technical picture is somewhat bearish for the pair.
The EUR/USD is trading closer to 1.1600 than 1.1700 on Friday the 13th, lower on the day but still within well-known ranges. The US Dollar extends its gains and for good reasons.
Federal Reserve Chair Jerome Powell gave an interview on Thursday in which he said that he "sleeps well at night," expressing confidence about the economy. While he did say there is a rising concern about trade among business contacts, the overall tone was bullish on the economy. Another Fed member, Patrick Harker, opened the door to supporting a total of four rate hikes in 2018 after previously backing only three.
The Fed may have better reasons to raise rates as inflation is picking up. Core CPI accelerated to 2.3% in June, as expected, but still showing that also the Fed's second mandate is at the target. Today, the leading indicator is the University of Michigan's Preliminary Consumer Sentiment measure for July.
Concerns about trade remain high on the agenda, but the impact is limited to pressure on Chinese stocks rather than markets in the US or Europe. Talks between the sides are planned to commence on July 25th. The threat of duties on cars has weighed on the common currency in the past.
The NATO Summit, which included US President Donald Trump and his European peers ended with a commitment to increase defense spending but with a lot of bad blood between the sides. Trade and security are related.
The European Central Bank published its meeting minutes on Thursday, and the general message remained dovish. A high level of uncertainty caused the conditionality regarding the end of QE and raising interest rates. While the release did not have an immediate adverse effect, it served as a reminder of the divergence between the central banks, with the Fed having the upper hand.
EUR/USD Technical Analysis
The EUR/USD traded within a downtrend channel in the past few days and is now moving below downtrend support (thick black line on the chart). Downside momentum on the 4-hour chart is robust, and the Relative Strength Index is below 50 but still above 30 - above oversold territory.
The pair also dropped below the 50 and 200 Simple Moving Averages. All technical indicators are pointing down.
The next line of support is 1.1590 which held the pair early in July. 1.1540 was a cushion to the pair on several occasions in June. 1.1508 is the 2018 trough. Even lower, 1.1480 capped the EUR/USD in July 2017.
Looking up, 1.1665 was a stepping stone for the pair on its way down this week. 1.1690 was a low point on July 10th and worked as resistance beforehand. 1.1720 capped the pair twice and remains essential. 1.1795 was the peak on July 9th.
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