EUR/USD Forecast: Will this pressure cause a breakdown?

• The EUR/USD is on the back foot, repeating the pattern from yesterday.
• Markets are watching the trade spat between the US and China.
• The technical picture shows bears are gaining more ground.

The EUR/USD is struggling with 1.1600 once again as the US Dollar gains fresh strength across the board. A similar move was seen on Wednesday only for the pair to rebound from the lows. Will the greenback weaken in the afternoon? Not necessarily. The pressure is mounting. 

The market mood has somewhat worsened as China steps up its game against the US. The People's Bank of China devalued the Yuan once again, in what many see as a move against the US. A weaker exchange rate is more favorable for exports even as tariffs are rising. On the other hand, the world's second-largest economy is worried not to trigger a capital outflow.

Chinese officials have also rebuffed American claims that China is the culprit of stalled trade negotiations. White House Chief Economic Adviser Larry Kudlow blamed China earlier, explicitly pointing the finger at Chinese President Xi Jinping. The blame game weighs on markets. 

On Wednesday, Fed Chair Jerome Powell made his second appearance on Capitol Hill and repeated the same messages: the economy is doing well, and the Fed is set to raise rates gradually. He was cautious about trade once again, but his stance is clear: higher tariffs are not good for the economy. 

In the euro-zone, the final read of inflation for June saw a small downside surprise in the Core Consumer Price Index, which was revised down to 0.9% YoY from 1.0% in the original read. The data strengthen the doves in the European Central Bank.

The calendar features weekly US jobless claims and the Philly Fed Manufacturing Index, both second-tier indicators. Markets remain focused on trade wars.

EUR/USD Technical Analysis

EUR/USD bears are in control. The Relative Strength Index is below 50, leaning lower, but above 30, thus still not in oversold territory. Momentum is to the downside and the pair trades below both the 50 and the 200 Simple Moving Averages on the four-hour chart. 

The round number of 1.600 is a battleground after the pair bounced from the line on Wednesday. It is also close to the July 2nd low of 1.1590. Further down, 1.1540 was a cushion for the pair in July. The next line of defense is the 2018 low of 1.1508. Even lower, 1.1480 worked as resistance around this time last year.

Looking up, 1.1665 was a high point on Wednesday and capped the pair earlier. Above, 1.1695 worked in both directions last week. 1.1745 was a high point early in the week. 

More: Trade War from the Trenches: the dogs bark but the caravan moves on (for now)