The EUR/USD exchange rate remains vulnerable to further losses and looks set to take another step towards the key support level of 1.05 in the coming days. Inflation in the Eurozone this week may provide some relief. According to the latest trades, the euro/dollar EUR/USD has drifted towards the 1.0575 support level, its lowest in more than six months, and will stabilize around the 1.0590 level at the beginning of today's trades, Tuesday.
Overall, the euro has fallen by roughly 5.5% since its reversal in mid-July and has now completed ten consecutive weekly losses, a rare feat for the currency pair. Therefore, the performance trend remains constant in the downward direction with the economic data in the Eurozone remaining unsupportive and reinforcing the view that the European Central Bank (ECB) has completed the tightening cycle with the next step being reduction. Meanwhile, the US economy appears strong enough to support a potential rate hike in November.
EUR/USD had stumbled to six-month lows last week after the Fed kept alive the possibility of such a hike, but lower expectations for Fed tapering in 2024 had a bigger impact on the market.
A comment on currency pair trading. Fouad Razzaqzadeh, analyst at Citi Index, says "With economic activity remaining somewhat weak in the Eurozone, and the European Central Bank temporarily halting the interest rate hike cycle earlier than expected. Expectations for the EUR/USD pair remain bearish until the time comes in which the overall indicators in the Eurozone start to improve again, or the US data deteriorates sharply. That makes the time for the inevitable reductions in interest rates by the American Federal Reserve Bank significantly advanced."
At the moment, the analyst is looking to the EUR/USD to continue to find sellers in any bouts of strength. He added by saying: "The next downside target is around the 1.05 support, which is roughly where the January (1.0483) and March (1.0516) lows were formed."
Looking at the economic calendar, there is not much important and influential data until Friday to shake the upward direction of the US dollar. As the personal consumption expenditure inflation figures are due to be released in the United States and could support the recent trend of dollar stability if they come in ahead of expectations. The core personal consumption expenditure rate is expected to rise by 0.2% month-on-month in August, with any weakness likely to help the sterling rebound, especially if UK GDP data beats expectations.
But the Eurozone is expected to attract the most attention with inflation figures from Spain, Germany and France coming out ahead of Eurozone figures on Friday. Headline consumer price index inflation in the Eurozone is expected to reach 4.6% on an annual basis, down from 5.2% previously. The underlying growth rate is expected to reach 4.9% on an annual basis, down from 5.3%.
However, note that German inflation is due for release the day before and recent history has told us that this can have a bigger impact on the markets as it tends to set the tone for Friday's release. Indeed, recent months have seen the market move ahead of Friday's release. What makes things more complicated, is that the German number is often at the front through the release of the country's data that is published during the day.
Expectations of the euro against the dollar today:
- According to the performance on today's chart below, the general trend of the EUR/USD currency pair is downward.
- The break of support 1.0600 confirms the extent of the bear's control over the trend and at the same time moves all the technical indicators towards strong sell saturation levels.
- The traders will look for opportunities to buy again but without risking the support levels 1.0525 and 1.0470 respectively.
On the other hand, and in the same period of time, the bulls will have opportunities to rebound higher if it returns first above the 1.0820 resistance. This requires the calming down of the factors of the dollar's strength and the return of confidence in the euro.
Today the focus will be on the announcement of American consumer confidence and the number of new American home sales.
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