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EUR/USD Forecast: Interim support emerges around 1.0900

  • EUR/USD reversed part of the recent strong gains.
  • The ECB kept its policy rates unchanged, as expected.
  • ECB’s Lagarde sees inflation hitting the target in H2 2025.

The US Dollar (USD) regained momentum on Thursday, lifting the USD Index (DXY) back above the 104.00 barrier, helped by the decent bounce in US yields across various maturity periods.

Against that, EUR/USD set aside two consecutive sessions of gains and challenged the 1.0900 region, also following the dovish hold by the ECB at its meeting on Thursday and a marginal uptick in German 10-year bund yields.

Back to the ECB event, during her press conference, President Christine Lagarde argued that she expects the recovery to be supported by consumption, highlighting the resilience of the labour market. She also noted that domestic inflation remains high and that wages are rising at an elevated rate. Additionally, she projected that the Harmonized Index of Consumer Prices (HICP) would decline to the bank’s target in the second half of 2025. Furthermore, Lagarde also identified wages, profits, and geopolitical factors as potential upside risks to inflation.

Conversely, there is ongoing debate among investors about whether the Fed will implement one, two, or three rate cuts this year, despite the Fed's current projection of a single cut, likely in December.

The CME Group's FedWatch Tool indicates a nearly 98% probability of lower rates at the September 18 meeting, with another rate cut fully anticipated in December.

Supporting this outlook, Austan Goolsbee, President of the Chicago Federal Reserve Bank, expressed that the US economy seems to be reverting to a 2% inflation target following an earlier increase this year. His observations indicate growing confidence that the opportunity to reduce interest rates may be approaching.

Meanwhile, the economic recovery prospects in the Eurozone and signs of cooling in key US economic indicators may mitigate the ongoing disparity in monetary policy between the Fed and the ECB, occasionally supporting the EUR/USD pair in the near future. This perspective has gained traction pari passu rising expectations of Fed interest rate cuts.

Looking ahead, upcoming Fedspeak should dictate the pair’s price action as the trading week draws to a close.

EUR/USD daily chart

EUR/USD short-term technical outlook

EUR/USD is expected to face the next upward resistance at 1.0948 (July 17), followed by the March high of 1.0981 (March 8) and the psychological 1.1000 level.

If bears retake control, the pair may target the 200-day SMA of 1.0810 before sliding to the June low of 1.0666 (June 26). The loss of the May low of 1.0649 (May 1) leads to the 2024 bottom of 1.0601 (April 16).

Looking at the larger picture, it looks that further gains are on the way if the important 200-day SMA is surpassed on a convincing fashion.

So far, the 4-hour chart shows some loss of upside momentum for the time being. However, the initial resistance is 1.0948, before 1.0981 and 1.1000. On the other hand, the 55-SMA at 1.0872 comes first, followed by the 200-SMA at 1.0793, and then 1.0709. The relative strength index (RSI) dropped to about 47.

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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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