- The EUR/USD exchange rate is trading within the high end of its year-to-date range, but the technical background on the charts suggests an uncertain outlook.
- The future path of the single European currency could become clearer with the release of inflation figures.
- Since the start of this week's trading, the price of the euro currency pair against the dollar, EUR/USD, is moving in a narrow range between 1.1016 and 1.0930, and it settles around 1.0975 at the time of writing the analysis.
The single European currency rose against most other major currencies, including the broadly stronger dollar on Tuesday after simultaneous losses in stock and bond markets around the world stumbled to an earlier rally near technical resistance near the 1.10 resistance during the opening session of the week.
“Near-term resistance is seen for EUR/USD at 1.1014,” says David Sneddon, Head of Technical Analysis at Credit Suisse, “Levels above 1.1055 could increase the possibility of a more significant bottom. Although we need to see the above recent 'outside day' high of 1.1152 to reconfirm the broader uptrend 'and' close below 1.0934/24 then Friday's low at 1.0912 though would warn of a more significant reversal potential with support Which we are seeing next on the late June-July lows at 1.0835/33, now possibly the longer term 200 SMA,” he added.
Dollar prices had previously fallen as euro pairs gained after Friday's latest non-farm payrolls report indicated that overall employment growth in the United States eased further last month, while also indicating that average wage growth rates remained near high levels.
Meanwhile, one of the factors that particularly affected euro pairs earlier on Monday was Destatis figures, which indicated a continued deepening decline in German industrial production in June and the second quarter even as the general contraction of Europe's largest economy faded during the quarter. According to analysts, the German industry is still in difficult conditions. Last year's energy price shock and forced green transition add to weak US and Chinese demand for manufactured imports and to an inventory correction in global manufacturing. While the eurozone economy is likely to stagnate to recall 2023, buoyed by continued rising demand for services, we expect the manufacturing-heavy German economy to ease into a moderate recession in the second half of 2023.
Monday's industrial figures followed last week's release of Euro-Zone data indicating the continental economy grew by 0.3% in the second quarter but by a lower 0.1% if accounting quirks in Irish and French economic figures are excluded. Whatever the data do or don't do for the EUR, the EUR/USD is likely to be sensitive to the outcome and implications of Thursday's US inflation numbers for July, and given the technical reversal point on the charts, these could be a formative effect on the trend.
EUR/USD Technical Outlook
No change in performance means no change in expectations. As I mentioned before, the price of the euro against the dollar, EUR/USD, will continue to move in narrow ranges until the reaction to the announcement of US inflation figures, which will have a strong reaction on US interest expectations and, accordingly, on the performance of the US dollar.
So far, the price of the euro against the dollar is still under downward pressure as long as it is stable below the 1.1000 level, and the bears' control will increase if the currency pair moves toward the psychological support level at 1.0880. The currency pair is strongly bullish and is testing the resistance at 1.1120, in the event that the numbers come out supporting the cessation of the Fed's policy tightening.
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