Stability and tight trading is what characterizes the performance of the EUR/USD currency pair since the start of trading this week, amid a bearish momentum that settles around 1.0910 at the time of writing. The EURUSD is likely to take its cues from top-tier US stimuli, including core PCE price index, durable goods orders, and Fed Chair Powell's speeches.
The possibility of a July rate hike is still being sought by many, despite the Fed pausing in June, so a bullish inflation surprise could be enough to make the dollar bulls hope for further tightening. On the other hand, the downbeat inflation numbers could dampen hopes of another hike in US interest rates at the upcoming FOMC meeting.
Meanwhile, the Eurozone will see brisk CPI readings coming in, so strong results could boost hopes for an extended period of ECB tightening. Note that the ECB has already lifted its latest decision and shows no sign of stopping its moves so far.
Overall, the European single currency - the Euro - sold off heavily ahead of the weekend after S&P Global surveys warned of a deepening slowdown in key industries across the continent's major economies, but EUR/USD managed to hold on to much of its gains in June. Trading entered the new week in full swing. Meanwhile, reports of sluggish conditions in manufacturing and services are in line with recent official data covering the industrial sector and do not seem out of place against the backdrop of a technical slump in Europe, but inflation and European Central Bank (ECB) interest rate policy are likely to be more important to the euro outlook.
The forex and bond markets could get fresh insights into the European Central Bank's policy stance as soon as Wednesday when Chair Christine Lagarde leads the annual Policy Committee debate at the European Central Bank's Forum on Central Banking in Sintra, Portugal. Although Lagarde and her colleagues have already made it clear at this month's policy briefing that board members are very concerned about core inflation — non-energy and food inflation — which is proving more stubborn than the headline rate of inflation due to accelerating wage growth that eased pressure on “ real income.”
Technical analysis of the euro against the dollar:
- EUR/USD price has retreated through the ascending trend line support on short-term timeframes and is in the middle of retesting the previous floor.
- The Fibonacci retracement tool shows that this is in line with the 38.2% level around 1.0910, which might be enough to keep the gains in check.
- If so, the EUR/USD could drop to the swing low of 1.0840 or lower.
Meanwhile, the higher pullback could still reach the 50% Fibonacci retracement at 1.0930 or the 61.8% level at 1.0952. The 100 SMA is still above the 200 SMA after all, so there is some bullish pressure on the way. The gap between the moving averages is narrowing to indicate weak bullish momentum, however, a bearish cross might be enough to put the sellers back in control. Stochastic has already reached the overbought area and looks ready to head lower, so the price may follow suit as bearish pressure returns. On the other hand, the RSI is in the middle of the road to reflect consolidation but seems to be moving higher at the moment.
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