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EUR/USD Analysis: Euro Gains Wait for Strength

  • Lower-than-expected US inflation figures allowed the EUR/USD exchange rate to recover last week with gains that reached the resistance level of 1.0895 before closing the week's trading stable around the level of 1.0868.
  • It was subjected to profit-taking selloffs on Friday that pushed it towards the level of 1.0835 before recovering again.
  • This week, in the United States, investors will be closely watching speeches by several Federal Reserve officials, the minutes of the FOMC meeting, and key economic indicators including the S&P manufacturing and services PMI, durable goods orders, new and existing home sales.
  • At the same time, the earnings season is nearing its end.

EUR/USD Analysis Today 20/5: Gains Wait for Strength (graph)

Elsewhere in Europe, Eurozone, German and French flash PMI data will be released, with the services sector expanding faster and manufacturing contracting less. In addition, eurozone consumer confidence is expected to improve to its highest level since February 2022. Moreover, Germany is expected to see producer prices rise for the second month in a row in April, albeit at a slower pace. Other important data to watch include the eurozone trade balance, negotiated wages, final Q1 GDP data for Germany, and the Turkish interest rate decision.

What is expected for the EUR/USD price in the coming days?

According to the platforms of Forex currency trading companies, the price of the euro reached its highest level in a month last week. Prices were driven by the US inflation report that was released on Wednesday, which came in lower than expected and which reinforced expectations that the Federal Reserve will cut US interest rates in September and again in December. Accordingly, the euro extended against the US dollar to a peak of 1.0898 on Thursday, but has since retreated from its gains to 1.0843.

Meanwhile, the decline signals emerging bullish fatigue and investor caution as we move towards the ECB's policy decision on June 6. Commenting on this, Valentin Marinov, head of the currency analysis department at Credit Agricole Bank, says: “We believe that many positives for the euro and negatives for the US dollar already exist at current levels.”

Credit Agricole Bank believes that the euro's recent strengthening could encourage the ECB to deliver a "dovish rate cut" on June 6, suggesting the potential for further easing. For his part, Charalambos Pissoros, senior investment analyst at XM.com, says the dollar is recovering after recent comments by Fed officials suggesting there is no reason to change the monetary policy stance now, despite slowing inflation in the CPI.

For her part, Cleveland Fed President Loretta Mester went a step further, adding that if long-term inflation expectations begin to rise as well, the Fed may need to be open to further raising interest rates, despite She said this was not her primary condition. For his part, Valentin Marinov, Forex analyst at Credit Agricole Bank, says: “The price of the US dollar remained at the forefront throughout the night, after a group of Federal Reserve spokesmen stressed the need for patience before easing monetary policy.”

Looking at the charts, if the emerging EUR setback extends, it could reach the 200-day moving average at 1.0788. However, the technical setup for the EUR-USD improved significantly last week. Furthermore, technical analysts say that more gains are possible in the medium term (1-3 months), and one of them says that the 1.10 level may return to contention in the coming weeks.

Consequently, this suggests that the 2024 lows have been reached, but a return to the highs could be a long-term process.

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    EUR/USD Technical analysis and forecast:

    We expect a quiet trading session at the beginning of this week for the EUR/USD exchange rate after investors and markets have reacted to the recent weak US inflation numbers. With a European holiday, all attention will be on a series of statements from US Federal Reserve officials later today. According to the performance on the daily chart, the EUR/USD is in an upward channel. To confirm the strength of the current trend, the bulls need to move towards the resistance levels of 1.0930 and 1.1000, respectively. Conversely, on the same time frame, a return to the support area around 1.0760 would threaten the current upward rebound.

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    Mahmoud Abdallah
    About Mahmoud Abdallah
    Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.
     

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