EUR/USD Forecast: US Dollar taking advantage of mounting concerns

Valeria Bednarik FXStreet

EUR/USD Current Price: 1.0938

Mixed comments from Federal Reserve officials maintain financial markets in cautious mode.
Wall Street trimmed most of its Monday's gains backing US Dollar demand.
EUR/USD nearing last week's low at 1.0911 with bearish momentum.

A sour market mood maintains EUR/USD under pressure on Thursday, with the pair trading at around 1.0940 ahead of Wall Street's opening. United States (US) indexes posted substantial gains on Monday, helped by solid earnings reports. Nevertheless, mixed comments from Federal Reserve (Fed) officials maintained optimism in check. Fed policymakers were wary of anticipating a pause in the tightening cycle. On the contrary, they suggested interest rates could stay higher for longer to tame inflation. The common point of multiple speeches was that upcoming decisions would depend on data, in line with what Chair Jerome Powell announced after the July meeting.

The sentiment deteriorated through the Asian session as Chinese data disappointed. The July Trade Balance posted a better-than-anticipated surplus of $80.6 billion, although imports plunged 12.4% while exports were down 14.5%, much worse than expected.

Meanwhile, US Treasury bond yields gave back some of their Monday gains as investors juggle between Fed's perspectives and upcoming inflation figures. The US will release the July Consumer Price Index (CPI) on Thursday, and financial markets anticipate a slight decrease in price pressures. As of writing, the 10-year note yields 4.01%, down 6 basis points (bps)

Earlier today, Germany published the final estimate of the July Harmonized Index of Consumer Prices (HICP), which s confirmed at 6.5% YoY. On the other hand, the US released the NFIB Business Optimism Index, up to 91.9 in July from 91 in June. Additionally, the June Goods and Services Trade Balance posted a deficit of $ 65.5 billion, worse than anticipated.

EUR/USD short-term technical outlook

The EUR/USD trades at fresh weekly lows and not far above the previous weekly bottom at 1.0911. Technical readings in the daily chart favor a bearish extension, given that technical indicators resumed their declines within negative levels, gaining downward traction. At the same time, the 20 Simple Moving Average (SMA) turned marginally lower, far above the current level. Finally, the 100 SMA provides dynamic support at around 1.0920. A bearish breakout through the 1.0910/20 price zone could lead to a test of the 1.0833 low posted on July 6.

For the near term, and according to the 4-hour chart, the case for a downward extension is more straightforward. The Momentum indicator is crossing its midline into negative territory with enough strength, while the Relative Strength Index (RSI) indicator heads south almost vertically, currently at around 40. Furthermore, EUR/USD is currently developing below all its moving averages, with the 20 SMA flat at around 1.0975. Should the pair recover, it is worth noting that the bearish case will remain in place as long as sellers continue to reject advances around the 1.1000 level.

Support levels: 1.0910 1.0870 1.0830

Resistance levels: 1.1005 1.1065 1.1105

View Live Chart for the EUR/USD

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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