EUR/USD forecast: The ongoing corrective bounce remains at the mercy of USD price dynamics
- Escalating US-China trade tensions prompted USD long-unwinding trade and helped the pair to stage a goodish rebound.
- The positive momentum seemed unaffected by a fall in the German 10-year bund yields below the ECB's deposit rate.
- Traders look forward to the final Euro-zone services PMI and the US ISM non-manufacturing PMI for some impetus.

Following the latest round of US-China trade talks, which ended without any major breakthrough, the US President Donald Trump on Thursday announced to impose 10% tariffs on the remaining $300 billion worth of Chinese imports from September 1. This was followed by China's warning to retaliate against the new US tariffs and resurfaced fears of a full-blown trade war between the world's two largest economies. An abrupt escalation in the US-China trade tensions overshadowed last week's hawkish Fed rate cut and triggered a vigorous reaction in the bond markets. A fresh leg of free-fall in the US Treasury bond yields prompted some aggressive US Dollar long-unwinding trade and assisted the EUR/USD pair to stage a goodish rebound from 26-month lows.
The bearish pressure surrounding the greenback remained unabated following the release of mixed US monthly jobs report, showing that the economy added 164K new jobs in July. The reading was in line with consensus estimates but marked a notable slowdown from the previous month's downwardly revised reading of 193K (224K reported earlier). Meanwhile, the unemployment rate held steady at 3.7% but the upside surprise comes from wage growth data, showing that average hourly earnings rose 0.3% in July as compared to a rise of 0.2% expected. Adding to this, the US trade deficit narrowed slightly to $-55.2 billion in June, albeit failed to provide any immediate respite for the USD bulls or hinder the pair's recovery move.
The greenback languished at the start of a new trading week and continued driving the pair higher for the third consecutive session, further beyond the 1.1100 round figure mark. The positive momentum seemed rather unaffected by the ongoing side in the German 10-year Bund yield, which fell well below the European Central Bank's (ECB) negative deposit rate to hit a record low level of -0.501% on Friday. Apart from developments in the German bond market, traders on Monday will further take cues from the final Euro-zone services PMI prints for July. From the US, the ISM non-manufacturing PMI will further contribute towards producing some short-term trading opportunities later during the early North-American session.
From a technical perspective, the pair has managed to find acceptance above 23.6% Fibo. level of the 1.1412-1.1027 recent downfall and hence, seems poised to extend recovery momentum. Immediate resistance is pegged near the 1.1155 horizontal resistance, which is closely followed by the 1.1175-80 supply zone and the 1.1200 round figure mark. A follow-through recovery has the potential to lift the pair further beyond 50% Fibo. level towards challenging 100-day EMA - around the 1.1245-50 region.
On the flip side, the 1.1100 handle now seems to protect the immediate downside, which if broken might turn the pair vulnerable to accelerate the slide towards 1.1075 intermediate support before eventually dropping to multi-month lows - near the 1.1025 region ahead of the key 1.10 psychological mark.
Author

Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
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