As I mentioned yesterday, the EUR/USD currency pair may remain under downward pressure until the markets react to the announcement of inflation numbers in the eurozone and US job numbers. It settled around the 1.1000 level at the time of writing the analysis and moving below it will remain supportive for the bears to drive the currency pair to stronger descending levels.
The US dollar may take cues from the US non-farm payroll numbers throughout the week, as analysts expect another slight dip in employment. Employment is estimated to have increased by 200k for the month of July, less than the previous gain of 209k. The stronger-than-expected non-farm payroll data may keep alive hopes for further Fed tightening for the rest of the year, especially if the upbeat headline numbers are accompanied by a solid pickup in wage growth or average hourly earnings.
After all, higher wages may translate into stronger pressures on consumer prices, which may encourage the Fed to continue increasing borrowing costs.
Major indicators lined up throughout the week, including the ISM Manufacturing PMI, JOLTS Employment Opportunities, ADP Non-Farm Employment Change, and ISM Services PMI are likely to influence the price action of the US dollar as well.The ECB's tone has changed decisively. and hard steering went ahead, But the reliance will be on the incoming economic data. But what does this transition mean for European interest rates and the euro?
Activity data does not guarantee further interest rate hikes, especially if inflation continues to trend downward. Only an upward surprise in inflation for the eurozone will force the ECB to raise interest rates again in September. However, in the next six to nine months, the downside of the ECB's policy rate is limited because growth data will stabilize.
“EUR/USD has similarly corrected sharply lower after capping as expected at resistance at the 61.8% retracement of the 2021/2022 decline,” David Sneddon, an analyst at Credit Suisse, wrote in a technical analysis presentation last Thursday.
“Support below at 1.1003 suggests there is room for another weakness until support levels 1.0905 / 1.0833 – the 55-day moving average, and the upside from the lows of last September and early July. This needs to hold to suggest weakness is corrective before strength returns to 1.1152 and then a retest of 1.1275/77,” he added.
EUR/USD Technical Outlook
- The price of the EUR/USD currency pair is heading lower, forming lower highs linked to a stable downtrend line since mid-July.
- The price seems ready for another test of this resistance area.
- The Fibonacci retracement tool shows that the trend line coincides with 61.8% Fibonacci retracement at 1.1071. A stronger decline might indeed find sellers at 50% Fibonacci or 1.1048 which goes along with the 100 SMA dynamic reversal.
On the subject of moving averages, the 100 SMA is below the 200 SMA to confirm that the trend has turned bearish or that the resistance is more likely to hold than to be broken. And a bigger correction could reach the 200 SMA dynamic resistance just above the trend line and the key psychological resistance at 1.1000. The stochastic is already heading lower to show that selling pressure is building, so EUR/USD may follow suit and test the swing low at 1.0941. It also appears that the RSI is heading lower without reaching the overbought territory, which indicates that the sellers are keen to return.
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