EUR/USD Forecast: Tepid bounce hints at a bearish breakout

EUR/USD Current Price: 1.0042

• A White House memo put a temporal halt to panic selling.
• German and US inflation updates will be out on Wednesday.
• EUR/USD has lost its bullish corrective impulse and may soon resume its slide.

The EUR/USD pair ended Tuesday with modest gains, trading in the 1.0040 price zone. The pair flirted with parity before recovering some ground, trading as low as 0.9999, a level that was last seen in December 2002, when it bottomed at 0.9859. Recession fears kept leading the way, temporarily cooled by a memo from the White House indicating that macroeconomic data from the first half of the year is “not consistent with a recession.”

Equities changed course with the headlines, which helped European indexes to close in the green and Wall Street to trim part of its weekly losses. Nevertheless, US indexes turned south in the final hour of tradings and gains among high-yielding assets were limited as concerns about economic growth and higher inflation remain the same.

In fact, macroeconomic data pointed in that direction, as the German ZEW survey showed that the Economic Sentiment plunged to -53.8 in July, much worse than the previous -28. For the EU, the sentiment plunged to -51.1, while the assessment of the current situation was also much worse than anticipated. The US published the NFIB Business Optimism Index, which fell in June to 89.5 from 93.1 in the previous month and the July IBD/TIPP Economic Optimism up to 38.5 from 38.1 previously.

The focus is now on inflation as Germany and the US will release updates on their respective Consumer Price Indexes. German annual inflation is expected to be confirmed at 7.6% in June, while US one is foreseen to jump to 8.8%, a new multi-decade record.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows that sellers retain control, although the pair is partially losing its downward momentum amid oversold conditions. Technical indicators remain at extreme levels, although the RSI has turned flat at around 26. At the same time, the pair keeps developing below bearish moving averages, with the 20 SMA now at around 1.0390. A corrective advance seems likely in the near term if the pair surpasses the former yearly low and immediate resistance at 1.0070.

The 4-hour chart shows that technical indicators have lost their positive impulse after correcting extreme oversold readings, with the Momentum turning lower and the RSI now flat in the 34 area, cooling expectations for a steeper advance. Furthermore, moving averages maintain their firmly bearish slopes far above the current level, with the 20 SMA providing dynamic resistance at around 1.0120.  Failure to advance will discourage bulls and result in a sharp slide below the 1.0000 threshold.

Support levels:  1.0000 0.9960 0.9915

Resistance levels: 1.0070 1.0120 1.0155  

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