The EUR/USD pair’s gains are subject to profit-taking operations, especially this week with the markets anticipating the monetary policy decisions of the US Central Bank.
This is in light of the cautious situation that dominates the markets and investor sentiment after US inflation reached the highest reading. At the end of last week's trading, the currency pair fell towards the support level 1.2092, before closing trading stable around the 1.2106 level. Its highest point during last week's trading was the resistance level 1.2217.
On the economic side, the EUR/USD currency pair is trading with interaction from the announcement that the initial US consumer confidence in Michigan rose strongly at a reading of 86.4 compared to expectations at a reading of 84. Before that, the US consumer price index excluding food and energy was announced by 3.8% on an annual basis. The market had expected a change of 3.4%. The rate (MoM) increased by 0.7% compared to the expected change of 0.4%. On the other hand, the general CPI increased by 5% (y/y) against the expected increase of 4.7%. It also rose 0.6% (MoM) vs. 0.4% expectation. US jobless claims exceeded expectations by 370K with a reading of 376K.
The European Central Bank decided to keep the policy rate unchanged at 0.0%. The deposit rate also held steady at -0.5%, both in line with expectations. The European Central Bank has pledged to keep its bond purchases at a "significantly higher" level until September, although there is some disagreement over what to do in August when a lack of new issuance and liquidity is driving down purchases. This comes as bank officials revised their growth and inflation forecasts upwards.
The GDP growth forecast for this year has been raised to 4.6% (from 4.2%) and next year to 4.7% (from 4.1%). Inflation expectations have been raised to 1.9% (from 1.5%) this year and 1.5% (from 1.2%) in 2022. The forecast for 2023 is unchanged (2.1% GDP and 1.4% CPI). The risks were said to be broadly balanced for the first time since 2018.
Technical Analysis of EUR/USD: In the near term and according to the performance on the hourly chart, it appears that the EUR/USD is trading within the formation of a descending channel. This indicates a slight short-term bearish momentum in the market sentiment. The EUR/USD fell to overbought levels before rebounding again later on Friday. Accordingly, the bulls will look to consolidate the current bounce by targeting profits at around the 1.2146 resistance or higher at the 1.2191 resistance. On the other hand, bears will look to extend the current decline to 1.2064 support or lower to 1.2020 support.
In the long term, and according to the performance on the daily time frame, it appears that the EUR/USD is trading within the formation of an ascending channel. The pair pulled back recently to avoid crossing over to the overbought levels of the 14-day RSI. It maintains a long-term bullish slope. Accordingly, the bulls will look to ride the current bullish wave by targeting profits around the 1.2244 resistance or above to the 1.2397 resistance. On the other hand, the bears will look to pounce on a potential pullback at 1.1955 support or lower at 1.1803 support.
Today, the EUR/USD is not awaiting any important US economic data. Only the industrial production rate in the Eurozone will be announced.