EUR/USD Forecast: Time for a decisive move above 1.19? Why current worries are set to fade

Has global growth peaked? That is the question troubling investors' minds – rapidly replacing worries about inflation. However, there are reasons to be cheerful, and these could come to dominate markets and boost EUR/USD. 

The main source of fear came from the ISM Manufacturing Purchasing Managers' Index released on Monda and showed a decline to 59 points – worse than expected and below the psychologically significant 60 level. Nevertheless, any figure above 50 represents expansion and 59 is an upbeat number for this indicator.

Moreover, the Employment component advanced back above 50, representing stronger hiring. In addition, those surveyed said that finding workers became somewhat easier – a relief of concerns about filling open positions.

The most significant development comes from the Prices Paid component, which came off the highs. Markets' biggest concern until several weeks ago was that inflation would rise too quickly and force the Federal Reserve to tighten its policy too quickly. ISM's reported ease comes on top of Friday's lower-than-expected Core PCE figure. At 3.5% YoY, the Fed's preferred inflation gauge may have reached it's zenith. 

Overall, investors are now worried about growth peaking instead of relief that inflation is probably on its way down. 

On another front, there are also signs of improvement. COVID-19 cases are falling in the UK and Spain, the Western countries that were hit hardest and earliest in the current Delta variant wave. While they are still climbing in the US, more hesitant Americans are coming forward to get a jab. 

Source: FT

Will the market mood turn positive and weigh on the safe-haven dollar? Apart from these factors, investors are eyeing China's "techlash" – its pursuit of large domestic companies. The progress in passing the US infrastructure bill is also of interest. However, growth and inflation are in the spotlight ahead of Friday's US Nonfarm Payrolls report – which will grab attention later in the week.

EUR/USD Technical Analysis

Euro/dollar still enjoys upside momentum on the four-hour chart and is trading above the 50, 100 and 200 Simple Moving Averages. It has consolidated its gains after hitting a one-month high and could be readying another move to the upside.

Resistance awaits at 1.1905, which was July's peak. It is followed by 1.1950, 1.1975 and 1.2015, all levels that played a role in June.

Initial support is at the 1.1850 rough, which is also where the 200 SMA hits the price. It is followed by 1.1825, a swing high from late July and then by 1.1775 and 1.1750. . 

See Analyzing inter-market correlations to see if reflation trade is coming to an end – July 2021