EUR/USD Price Analysis: Descending trend line resistance to cap gains ahead of US CPI


  • EUR/USD gains positive traction for the second successive day amid a softer USD.
  • The technical setup favors bullish traders and supports prospects for further gains.
  • Political uncertainty in France might cap gains ahead of the crucial US CPI report.

The EUR/USD pair attracts buyers for the second successive day on Thursday and moves back closer to a nearly four-week high touched on Monday. Spot prices, however, remain below mid-1.0800s as traders await the release of the US consumer inflation figures before placing fresh directional bets.

Heading into the key data risk, growing acceptance that the Federal Reserve (Fed) will start cutting interest rates in September keeps the US Dollar (USD) bulls on the defensive and continues to lend some support to the EUR/USD pair. That said, the poll results of the second round of the French parliamentary elections raise the possibility of a hung parliament. This could act as a headwind for the shared currency and keep a lid on any further appreciating move for the major.

From a technical perspective, the recent breakout through the 1.0800 confluence hurdle – comprising 50-day, 100-day and 200-day Simple Moving Averages (SMAs) favor bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and suggest that the path of least resistance for the EUR/USD pair is to the upside. That said, any subsequent move-up is likely to confront stiff resistance near a downward-sloping line, currently around the 1.0880 area.

That said, a sustained strength beyond will be seen as a fresh trigger for bullish traders and pave the way for additional gains. Some follow-through buying beyond the 1.0900 mark will reaffirm the constructive outlook and lift the EUR/USD pair to the next relevant resistance near the 1.0960-1.0965 region. The momentum could extend beyond the March swing high, around the 1.0880 area, and allow spot prices to reclaim the 1.1000 psychological mark for the first time since early January.

On the flip side, any meaningful dip is likely to attract fresh buyers near the 1.0800 confluence resistance breakpoint turned support. This should help limit the downside for the EUR/USD pair near the 1.0755-1.0750 horizontal zone. Failure to defend the said support levels, however, might prompt some technical selling and drag spot prices further below the 1.0700 mark, towards challenging June monthly swing low, around the 1.0665 region.

EUR/USD daily chart

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Euro FAQs

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

 

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