EUR/USD loses traction, retreats below 1.0600
EUR/USD lost its recovery momentum and declined below 1.0600 in the American session on Friday, erasing a portion of its daily gains in the process. Nevertheless, the risk-positive market atmosphere after PCE inflation data helps the pair limit its losses.
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The sharp rebound following the lowest daily close of the year so far has improved the outlook for the Euro, although the overall trend remains bearish. A recovery rally could potentially extend to 1.0700 without disrupting the bearish trend.
On the 4-hour chart, technical indicators suggest a slight upside risk ahead of the Asian session. However, the area around 1.0580 has acted as a strong resistance level. It is a key zone that needs to be surpassed for the Euro to pave the way for further gains, initially targeting 1.0600 and then 1.0630. Conversely, a consolidation below 1.0550 would increase bearish pressure, exposing support levels at 1.0520 and 1.0495.
On Thursday, the EUR/USD experienced a sharp rise, rebounding from monthly lows and approaching the 1.0600 level. This move was primarily driven by a correction in the US Dollar, which took a pause after a prolonged period of gains.
Market sentiment weighed on the US Dollar, while US economic data continued to indicate a robust economy. Second-quarter GDP growth data showed the economy expanding at a 2.1% annualized rate, and Initial Jobless Claims came in lower than expected at 204,000. The key economic release of the week will be the Core Personal Consumption Expenditure Price Index, which, if it shows evidence of a rebound in inflation, could trigger a rally in the US Dollar across the board.
Comments from European Central Bank (ECB) members have had minimal impact on the Euro at the moment. Market expectations for no rate hike in October and small odds for December are prevailing. The perception that the ECB has reached its peak is strong currently. However, data remains critical, and on Thursday, the central bank received welcome news that helped support the Euro.
The annual inflation rate in Germany fell from 6.1% to 4.5%, while business and consumer sentiment indicators declined but less than expected. On Friday, Eurostat will release the Eurozone Harmonized Index of Consumer Prices, expected at 4.5% (down from 5.2%) for the headline rate and 4.8% (down from 5.3%) for the core rate.
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The EUR/USD plummeted to 1.0487 on Wednesday, its lowest since early March, as investors continued to seek refugee in the US Dollar. Financial markets were in risk-averse mode following central banks’ monetary policy decisions from earlier this month, as despite holding fire, most policymakers reaffirmed the inflation risks remain high and rates should stay higher for longer to maintain price pressures under control.