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EUR/USD Forecast: The negative bias remains unchanged so far

  • EUR/USD gave away part of Monday’s recovery.
  • The acceptable bounce in the US Dollar kept the pair under pressure.
  • Markets’ attention remains on US PCE due on June 28.

The resurgence of buying interest in the US Dollar (USD) prompted the USD Index (DXY) to recover some of Monday’s retracement, exerting marked pressure on risk-sensitive assets and pushing EUR/USD back below the 1.0700 area on Tuesday.

The sour mood around the single currency came despite dwindling political concerns in Europe, although expectations remained well on the rise ahead of the snap elections on June 30.

There were no changes to the macro scenario on both sides of the Atlantic, with the European Central Bank (ECB) still gauging the possibility of further rate cuts beyond the summer vs. market bets for two more rate cuts in the latter part of the year.

Around the Federal Reserve (Fed), market participants maintained alive the debate between one or two rate reductions this year, despite the Fed already voicing its forecast for just one cut, which is likely to be in December.

Still around the Fed, Governor Michelle Bowman emphasised earlier on Tuesday that holding the policy rate "for some time" will most likely be adequate to keep inflation under control. However, she emphasised her willingness to increase rates if required.

It is worth noting that the CME Group's FedWatch Tool now indicates nearly a 65% probability of lower interest rates at the September 18 gathering.

In the short term, the recent rate cut by the European Central Bank (ECB), in contrast with the Fed's decision to maintain rates, has widened the policy gap between the two central banks, potentially leading to further weakness in EUR/USD in the short-term horizon.

However, the Eurozone's emerging economic recovery and perceived loss of momentum in US fundamentals are expected to reduce this disparity, which could lead to occasional support for the pair in the near term.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the EUR/USD rebound gathers pace, the next target is the 200-day SMA at 1.0789, seconded by the weekly top of 1.0852 (June 12) and the June peak of 1.0916 (June 4). The breakout of this level exposes the March high of 1.0981 (March 8), prior to the weekly high of 1.0998 (January 11) and the important 1.1000 yardstick.

If bears gain control, the pair may initially revisit the June low of 1.0667 (June 14), ahead of the May low of 1.0649 (May 1), and lastly the 2024 bottom of 1.0601 (April 16).

So far, the 4-hour chart has shown some hints of renewed deterioration. The initial resistance occurs at 1.0761, followed by 1.0805 and 1.0852. The first support emerges at 1.0667, followed by 1.0649 and 1.0601. The Relative Strength Index (RSI) has stabilised at approximately 43.

Author

Pablo Piovano

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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