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EUR/USD Forecast: All the attention is now on Powell and US data

  • EUR/USD met some initial resistance near 1.0850
  • The slight recovery in the Dollar weighed on the pair.
  • Markets’ focus now shifts to Powell’s testimony and US CPI.

The US Dollar (USD) managed to regain some composure on Monday, sparking some reaction in the USD Index (DXY) back towards the 105.00 region amidst a broad-based retracement in US yields across different maturity periods.

The pick-up in the Greenback reignited some selling pressure on EUR/USD, dragging it back to the 1.0830 zone amidst some easing political concerns after the French second round of elections on Sunday.

The macroeconomic landscape remained relatively stable on both sides of the Atlantic. The ECB is considering further rate cuts beyond the summer, with market expectations leaning towards two additional cuts by the end of the year. Conversely, market participants are speculating whether the Fed will implement one or two rate cuts this year, despite the Fed's current projection of a single cut, likely in December.

The latest Nonfarm Payrolls data (+206K jobs), however, lent extra belief to the idea that the Fed might start its easing cycle as soon as September.

According to the CME Group's FedWatch Tool, there is approximately a 77% chance of interest rate cuts in September, increasing to nearly 97% by December.

The ECB's rate cut in June, combined with the Fed's decision to maintain rates, has widened the policy divergence between the two central banks. This divergence could potentially lead to further weakening of EUR/USD in the short term. However, the prospects of economic recovery in the Eurozone, along with perceived weaknesses in US economic fundamentals, may mitigate this disparity and provide occasional support to the currency pair in the near future.

Looking ahead, the upcoming testimonies by Chair Jerome Powell and the release of US inflation figures tracked by the CPI are expected to be the key drivers for the pair’s price action, at least in the very near term.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further upside should put EUR/USD en route to test the July peak of 1.0845 (July 8), closely followed by the weekly high of 1.0852 (June 12) and the June top of 1.0916 (June 4). If the pair breaks above this level, it may bring the March peak of 1.0981 (March 8) back into focus, ahead of the weekly high of 1.0998 (January 11) and the psychological 1.1000 level.

If bears take control, spot may fall to its June low of 1.0666 (June 26), then the May low of 1.0649 (May 1), and finally the 2024 bottom of 1.0601 (April 16).

Looking at the big picture, more gains look to be on the way if the crucial 200-day SMA (1.0797) is consistently surpassed.

So far, the 4-hour chart suggests a continuation of the bullish impulse. The initial barrier level is 1.0845, then 1.0852. The nearest support is at 1.0784, then 1.0709, and lastly 1.0666. The Relative Strength Index (RSI) deflated below 63.

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Author

Pablo Piovano

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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