EUR/USD Forecast: New lows in sight? US data, Delta and technicals all point lower

Uncomfortably high – that has been Federal Reserve Chair Jerome Powell's message on inflation in his second day on Capitol Hill. However, he still sees price rises as temporary and investors are at some unease. Uncertainty about the labor force participation rate and other factors also caused confusion.

To add fuel to the fire from the Fed, his colleagues sent contrasting messages. James Bullard from the St. Louis branch urged tapering down bond buys as the economy is booming – thus bringing a rate hike forward. On the other hand, Charles Evans from Chicago foresees an increase in borrowing costs only in late 2023 at the earliest.

The risk-off mood in markets boosted the safe-haven dollar on Thursday but the greenback has taken a breather on Friday. However, there are fresh reasons to see the world's reserve currency gain ground. 

The US consumer is in focus on Friday, with all-important Retail Sales expected to show a decline in June, extending May's slide. Disappointing data did not hurt the dollar on Thursday and it could advance on Friday if fresh concerns arise. 

See US June Retail Sales Preview: Analyzing major pairs' reaction to previous releases

What do shoppers think about inflation? The University of Michigan's preliminary Consumer Sentiment figures for July may provide some answers. If the inflation components of this survey rise, the dollar could follow suit. The Fed and markets are following forward-looking figures closely. 

See US Michigan Consumer Sentiment Index July Preview: Are inflation expectations changing?

Another source of fear is the Delta covid variant, which is spreading on both sides of the pond. The Netherlands, Cyprus, Spain and Portugal are the old continent's current hotspots, but infections are creeping higher also in other countries. That could slow the recovery – even if this wave is limited due to a fast-moving vaccination campaign.

In America, cases are much lower, but are on the rise in several places – and the immunization drive has stalled. However, while the euro suffers from growth concerns, the dollar benefits from safe-haven flows. 

See Delta Doom is set to storm America, the dollar could emerge as top dog

All in all, the downbeat market mood could extend for another day, pushing the currency pair lower.

EUR/USD Technical Analysis

Euro/dollar is suffering from downside momentum on the four-hour chart and has slipped back below the 50 Simple Moving Average. As the Relative Strength Index is outside oversold territory, there is room for more falls.

Immediate support is at the daily low of 1.18, followed by 1.1770, July's trough. Further down, 1.1740 and 1.17 are eyed.

EUR/USD has resistance at 1.1850, Thursday's peak, followed by the stubborn 1.1880 level and then by 1.19.