EUR/USD Forecast: Extra gains target 1.1000 and beyond

• EUR/USD briefly pierced the key 1.1000 barrier on Monday.
• The Dollar melted as markets priced in an inter-meeting Fed rate cut.
• Concerns over a hard landing in the US spooked investors.

EUR/USD added to Friday’s robust comeback and briefly trespassed the psychological 1.1000 hurdle in quite a positive start to the new trading week.

The strong move higher in spot followed an equally deep retracement in the US Dollar (USD), which sent the US Dollar (USD) to levels last seen in January near the 102.00 neighbourhood.

Meanwhile, investors continued to gauge last week’s discouraging prints from the US docket vs. the likelihood that the US economy might tip into recession this year, all requiring a probable inter-meeting rate cut by the Fed as well as more interest rate reductions.

Meanwhile, stocks around the world plummeted on (exaggerated?) fears that the world’s top economy could lose traction to the point of entering recession.

Looking at the money markets, US yields rebounded on the short end of the curve while trimming some losses in the belly and the long term. In Germany, 10-year bund yields bounced off fresh lows near 2.10%.

Back to the Fed, Austan Goolsbee, President of the Chicago Fed Bank, argued on Monday that Fed rate setters must closely watch changes in the US economy to avoid being overly restrictive with interest rates. He observed that, despite weaker-than-expected employment growth, there are currently no indicators of a recession. Goolsbee also warned against overinterpreting the global stock market sell-off.

The policy divergence between the Fed and the ECB could shrink in the event of more and deeper rate cuts by the Fed. However, fresh weakness in US fundamentals has flagged risks to the view of a soft landing, mirroring a loss of momentum in the Eurozone's recovery. This opens the door to a potentially weaker Dollar in the near term and extra gains in EUR/USD.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further north, EUR/USD’s first obstacle is the August high of 1.1008 (August 5), followed by the December 2023 top of 1.1139 (December 28).

On the downside, the next target for the pair is the 200-day SMA at 1.0827 prior to the weekly low of 1.0777 (August 1) and the June low of 1.0666 (June 26), all preceding the May low of 1.0649 (May 1).

Looking at the larger picture, the pair's constructive bias should hold if it climbs above the critical 200-day SMA in a convincing fashion.

So far, the four-hour chart suggests renewed bullish momentum. Against it, the initial resistance is at 1.1008, ahead of 1.1139. On the flip side, initial support aligns at 1.0777, seconded by 1.0709. The relative strength index (RSI) eased to about 68.