EUR/USD Forecast: Corrective decline is possible once below 1.0890

EUR/USD Current Price: 1.0919

• Asian news undermined the market’s mood, with central banks in the eye of the storm.
• European Central Bank Governing Council member Olli Rehn delivered a hawkish message.
• EUR/USD battles to retain its positive momentum above 1.0900.

The US Dollar retained its positive footing during Asian trading hours, although EUR/USD held above the 1.0900 threshold. The pair recovered as the US Dollar lost steam during the European session, but trades little changed from its daily opening, hovering around 1.0920.

The mood soured at the beginning of the day as the People’s Bank of China (PBoC) cut two key lending rates for the first time in almost a year amid concerns about slowing growth. The central bank cut the one-year loan prime rate by 10 basis points from 3.65% to 3.55% and the five-year loan prime rate by 10 basis points from 4.3% to 4.2%. Still, cuts were less steep than anticipated and somehow felt too little. The US Dollar also found support in the Reserve Bank of Australia (RBA) meeting Minutes as the document showed it was a close call between hiking rates or pausing.

Market players partially shrugged off the dismal sentiment, resulting in Asian and European indexes trading mixed, alongside easing USD demand ahead of Wall Street’s opening.

Meanwhile, European Central Bank (ECB) Governing Council member Olli Rehn hit the wires. Rehn said that underlying inflation is easing only gradually “but not to the extend desired.” His hawkish words reaffirmed the message delivered by the central bank last week and came as a no-surprise to financial markets.

Data-wise, the Eurozone published the April Current Account, which posted a seasonally adjusted surplus of €4 billion, much lower than anticipated. Construction Output also missed expectations, declining by 0.4% MoM in the same month. Across the pond, the United States (US) released May Building Permits, up by 5.2%, while Housing Starts were up 21.7%, beating market expectations.

Speculative interest still waits for Federal Reserve (Fed) Chairman Jerome Powell’s semi-annual testimony before Congress, scheduled for Wednesday.

EUR/USD short-term technical outlook

The EUR/USD pair is confined to a tight range for a third consecutive day, but technical readings favor a bullish continuation. In the daily chart, technical indicators turned marginally higher near overbought readings and following a brief consolidative period. Furthermore, the pair is developing above its moving averages, with the 20-day Simple Moving Average (SMA) gaining upward traction below a directionless 100-day SMA.

EUR/USD offers a neutral-to-bullish stance in the near term. In the 4-hour chart, the pair is struggling to retain gains above a firmly bullish 20-SMA, which develops well above the longer moving averages. At the same time, the Momentum indicator heads lower but remains stuck to its midline, while the Relative Strength Index (RSI) indicator eases from overbought readings. The pair could correct lower once below 1.0890, while bulls will recover the control on a break above 1.0945, the daily high.

Support levels: 1.0890 1.0850 1.0810

Resistance levels: 1.0945 1.0995 1.1040

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