The EUR/USD exchange rate held most of last month's gains during recent trading, but its rebound from its lows in late May has lost steam. A tide of momentum is now likely to leave the single European currency to surf waning hair waves along the near line at support 1.08 in the coming days. At the beginning of this week's trading, the price of the EUR/USD currency pair jumped towards the 1.0992 resistance level, closest to testing the psychological top at 1.1000, which supports the bullish shift.
EUR/USD completes Friday's gains when the United States announced its lowest monthly employment gain since December 2021, but the risk or even the possibility is that at least some of those gains will be delivered over the coming days. “Our short-term financial fair value model shows that EUR/USD should trade around 1.0800 based on current conditions,” commented Francesco Pessol, ING Forex Analyst. He added, “We expect mostly USD driven moves in EUR/USD this week, and see a greater risk of some pullback towards 1.0800 support rather than trading sustainably above 1.1000 resistance – which might be possible in case of a surprise US CPI on the weak side.”
With little by way of important appointments in the European calendar, the euro is likely to depend on whether the US economy is able to post its 10th straight drop in inflation when data for June is released on Wednesday. Commenting on this, Fouad Razakzadeh, market analyst at City Index and Forex.com says: “I think the downside risks are greater than the upside and I don't expect any potential move above the 1.10 resistance to hold in the short term.”
Surveys of economists favor the above type of outcome with inflation tending to decline from 4% to 3.1% for the latest month, but financial markets are likely to be more interested in the core rate and its reflection on price pressures once food and energy items are removed from the consumer goods basket. This is being watched closely by the Federal Reserve, but a potential problem for the euro is that the core rate has been much slower and more volatile in its descent from the 2022 peaks than the overall pace of inflation so far with recent declines in the latter largely driven by lower food costs. and energy.
Wednesday's key interest rate will be the most influential when it comes to determining whether financial market prices move in better alignment with the Federal Reserve's forecast released last month that suggested US interest rates could rise from 5.25% to 5.75% before the end of the year. Interest rate swaps markets indicated on Monday that US interest rates are likely to peak at 5.5% near the end of the year, but that could change if the benchmark rate jumps or exceeds an economic consensus currently looking for a 0.4% month-over-month increase in the June to leave the annual pace of core inflation at 5%.
Any unexpected inflation on Wednesday would likely be positive for EUR/USD in the latter half of the week if recent market trends are a guide as the crossover eases towards, or perhaps even below the set of daily moving averages near the round number of 1.08. Once after Wednesday, the single European currency's attention is likely to turn to the release of the minutes of the European Central Bank's June monetary policy meeting, the most important event on the continental calendar this week.
According to analysts, the rise in US consumer prices this week could lead to higher US interest rates and widen interest rate differentials further, which would weigh on the EUR/USD pair. EUR/USD has bearish support at 1.0727 (76.4% fibo), although that is unlikely to be tested this week.
EUR/USD Forecast:
- According to the performance on the daily chart below, there is an upward shift for the EUR/USD currency pair.
- Stability above the psychological resistance 1.1000 will be important for the bulls to control the trend and prepare to test higher peaks.
- I expect the euro/dollar currency pair to remain in its current range until it responds to the market’s reaction to the announcement of US inflation numbers this week.
This will have a strong and direct reaction to the future of raising US interest rates. On the other hand, and for the same period of time, the return of the euro / dollar towards the support level 1.0885 will be important for the return of bear control and the evaporation of the current upward hopes.
Ready to trade our daily Forex forecast? Here’s a list of some of the best regulated forex brokers to check out.
