EUR/USD Forecast: Time for a consolidation?

The US Dollar Index reaches fresh monthly highs, nearing 107.00.
USD rally remains supported by robust US data and Treasury yields.
Important inflation data from the Eurozone is scheduled for Thursday.

Matías Salord FXStreet

The EUR/USD has dropped for the seventh consecutive day, reaching its lowest level since January, falling below 1.0500. Despite occasional strength, the bias remains tilted to the downside, with no signs of a correction in sight. Market sentiment and upcoming inflation data from Spain and Germany on Thursday will be closely watched.

Comments from European Central Bank (ECB) members have had little impact on the markets. The central bank remains data-dependent, and this week's inflation figures will be critical for monetary policy expectations.

On Thursday, Spain and Germany will release their inflation figures. A rebound in Spain's annual consumer inflation rate is expected and a sharp decline in Germany's CPI. On Friday, Eurostat will release Eurozone CPI data. Persistent evidence of inflationary pressures would put the ECB in a challenging position, balancing the need for tighter monetary policy with a deteriorating economic outlook as confidence declines. Eurostat will release the Business and Consumer Sentiment Survey on Thursday.

The US Dollar continues to be the key driver, reaching fresh highs. The US Dollar Index has approached 107.00, its highest level since November. Despite declining equity prices, US Treasury yields remain near recent highs, with the 10-year yield climbing to 4.64%, the highest since October 2007.

Data released on Wednesday showed an unexpected increase in Durable Goods Orders of 0.2% in August, contrary to expectations of a 0.5% decline. On Thursday, the weekly Jobless Claims report, a revised reading of Q2 GDP growth, and Pending Home Sales data are due.

EUR/USD short-term technical outlook

The EUR/USD reached a bottom at 1.0488, the lowest level since March, just slightly above the year-to-date low of 1.0483. The pair is currently hovering around 1.0500, exhibiting a bearish bias, following a modest rebound. On the daily chart, the Relative Strength Index (RSI) dipped below 30, indicating oversold conditions. After seven consecutive days of declines, some consolidation appears likely, although downside risks persist.

On the 4-hour chart, the pair rebounded after reaching the lower boundary of a downward channel, suggesting the possibility of a correction or consolidation. However, a decisive break below 1.0480 could trigger an acceleration towards the next support area at 1.0455. The immediate resistance is located at 1.0550.

View Live Chart for the EUR/USD

Author

Matías Salord

FXStreet

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

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