I expected that the price of the EUR/USD would move in narrow ranges at the beginning of trading this week, which is what happened, as it moved between the support level at 1.0965 and the resistance level at 1.1016, and settled around 1.1000 at the time of writing the analysis, waiting for any new news. The currency pair may remain in its current range until the reaction to the announcement of US inflation numbers this week, which will have a strong and direct reaction on the future of raising US interest rates.
In recent trading, the US dollar has become weak after the release of the pessimistic US non-farm payroll data on Friday, as this reduces the chances of a US interest rate hike from the Federal Reserve. In turn, this can support general economic activity, which then increases risk while traders become less wary of recession risks.
The US CPI and PPI readings lined up this week and may still influence Fed tightening expectations. Inflation has been the key to the movements of Wall Street markets in recent years after it rose to its worst level in a generation. Since it peaked last summer, inflation has steadily cooled off. This raised hopes that the Federal Reserve may end its sharp hikes in US interest rates.
High rates try to stifle inflation by outright slowing down the entire economy and hurting investment prices. The Fed quickly pulled the US interest rate to the highest level in more than two decades, up from nearly zero early last year. The US inflation rate has fallen from more than 9% last summer to 3% in June. But many economists and professional investors say the hardest part may still be ahead as the Fed tries to bring inflation down toward its 2% target.
Chinese inflation data also deserves to keep more attention, as pessimistic readings could spur hopes for more PBOC stimulus and risk appetite.
Meanwhile, it is also worth noting that the European Central Bank has shifted to a less hawkish stance in its recent interest rate decision, which could also lead to a decline in the single currency. Average economic data from the region was also mostly downbeat last week, reinforcing the view that the European Central Bank may keep interest rates on hold for its next decisions.
EUR/USD Technical Outlook
- EUR/USD price is still in sell mode, making lower highs and lower lows connected to a downward channel on its hourly time frame. The price bounces off the resistance and may be ready to resume the slide again.
- Accordingly, the bears can target the nearby support levels at the bottom of the channel, near the main psychological mark at 1.0900, or the important channel middle area at 1.0950. Technical indicators indicate a continuation of the slide.
100 SMA is below the 200 SMA to confirm that the general trend is still bearish or selling is likely to gain steam from here. However, the EUR/USD has rallied above the moving averages, so it may hold as dynamic support on dips. The stochastic is heading lower, so the price may follow suit while the bearish momentum is present. The RSI is also moving lower to indicate selling pressure, and both oscillators have room to head lower before reversing exhaustion among the sellers.
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