EUR/USD Forecast: Euro with scope to extend the rebound, US data crucial

• The US Dollar corrects lower but still indicates an upward bias.
• US jobs data comes in below expectations, with more numbers ahead including Jobless Claims and NFP.
• The EUR/USD has some scope to extend the recovery, potentially facing increased resistance near 1.0560.

The Euro recovered from its lowest level in almost a year against the US Dollar but is struggling to hold above 1.0500. Despite the rebound, it remains under pressure, with the trend favoring the Dollar.

The sell-off in government bonds is making investors nervous. The German 10-year yield rose to 3% for the first time since 2011, while the US Treasury yield peaked at 4.88% before pulling back. Higher yields coupled with slowing inflation mean that real yields are soaring.

Data from the Eurozone showed that the Producer Price Index (PPI) rose 0.6% in August, matching expectations, while the annual rate deepened into negative territory from -7.6% to -11.5%. Retail Sales in the Eurozone contracted by 1.2% in August, a reading worse than market forecasts of a 0.3% slide.

European Central Bank President (ECB) Christine Lagarde reiterated that interest rates would remain at sufficiently restrictive levels for as long as necessary. Markets do not anticipate another rate hike, and comments from ECB officials have become a non-event for the time being. On Thursday, Germany will report trade data.

The US Dollar Index pulled back on Wednesday, but the upward trend remains intact, and fundamental factors still favor the Dollar. The soft ADP report boosted the correction, and incoming employment data, including Jobless Claims on Thursday and Nonfarm Payrolls on Friday, will be critical.

EUR/USD short-term technical outlook

Despite the rebound, the Euro is not out of the woods. The correction could extend without posing a significant threat to the dominant trend. On the daily chart, the Euro is trading well below the 20-day Simple Moving Average (SMA) and within a downtrend channel. A close above 1.0660 could change the short-term perspective to neutral.

On the 4-hour chart, there is some potential for an upside extension in EUR/USD, especially if it remains above the 20-SMA at 1.0505. The area around 1.0555 represents immediate resistance that could attract sellers, followed by an intermediate downtrend line at 1.0570. A decline below 1.0480 would expose recent lows at 1.0450. If this level is breached, the downside could find support at 1.0430, which is the lower boundary of the channel.

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