- EUR/USD faced extra downside pressure and approached 1.0900.
- The Dollar maintained its weekly recovery on the back of the weak Yen.
- Industrial Production in Germany came in above estimates in June.
On Wednesday, EUR/USD met further selling interest, adding to Tuesday’s pullback and revisiting the key 1.0900 neighbourhood on the back of the continuation of the US Dollar’s (USD) weekly comeback and a generally positive tone in global stock markets.
Regarding the Greenback, the USD Index (DXY) rose further north of the 103.00 mark after a steep drop to the 102.00 region on Monday. This rebound was supported by an extra depreciation in the Japanese yen and another positive day in US yields across the board.
Adding to the upbeat sentiment for the Greenback, concerns over an inter-meeting rate cut by the Fed evaporated, helped at the same time by recent comments from Fed rate-setters A. Goolsbee and M. Daly, who suggested on Tuesday that markets might have overinterpreted recent US labour market data, ruling out a recession but hinting at potential rate reductions to avoid such an outcome.
In the German money market, 10-year bund yields extended their weekly bounce and confronted the 2.30% region, in line with the trend in global yields.
Still around the Dollar and the Fed, markets now see an increased probability of a 50 bps rate cut in September. According to CME Group’s FedWatch Tool, there is nearly a 65% chance of this move next month.
If the Fed implements more significant rate cuts, the policy divergence between the Fed and the ECB could narrow in the medium term, which may support further gains in EUR/USD.
In the longer run, however, the US economy is expected to outperform its European counterpart, suggesting that any weakness in the Greenback may be temporary.
EUR/USD daily chart
EUR/USD short-term technical outlook
Further north, EUR/USD is expected to dispute the August top of 1.1008 (August 5), ahead of the December 2023 peak of 1.1139 (December 28).
On the downside, the pair's next target is the 200-day SMA at 1.0830, prior to the weekly low of 1.0777 (August 1) and the June low of 1.0666 (June 26), all of which occurred before the May low of 1.0649 (May 1).
Looking at the big picture, the pair's positive bias should hold if it remains above the key 200-day SMA in a sustained manner.
So far, the four-hour chart shows some consolidative action. The initial resistance level is at 1.1008 ahead of 1.1132. On the other hand, immediate contention is at 1.0903 ahead of the 200-SMA of 1.0828, and 1.0777. The relative strength index (RSI) gyrated around 55.
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