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EUR/USD Analysis: Rally Paused Near 1-Month High

  • EUR/USD’s gains have been temporarily halted around its highest in a month with gains reaching the resistance level of 1.0845 and are stabilizing around the level of 1.0810 at the time of writing.
  • The latest performance was driven by the rise in the US dollar price after the testimony of Federal Reserve Chairman Jerome Powell.
  • Recently, Powell indicated that the Fed will not cut the federal funds rate until there is greater confidence that US inflation is moving sustainably towards its 2% target.
  • Also, he said that reducing policy restrictions too late or too little could lead to unjustified weakening of economic activity and employment.

EUR/USD Analysis Today 10/7: Rally Paused (graph)

In Europe, investors expect the European Central Bank to cut interest rates once or twice this year, after preliminary figures showed that the annual inflation rate in the euro zone fell in June to 2.5%. However, the core rate remained steady at 2.9% and service inflation remained high at 4.1%. On the political front, France saw a hung parliament after the second round of elections, easing fears of extremist policies.

On the stock exchanges front, European stock indices are in the red.

According to trading platforms, both the Stoxx 50 and Stoxx 600 indices extended their losses in afternoon trading on Tuesday. The former lost 1.1% and the latter fell 0.7%, after a lacklustre session on Monday, as traders continue to assess the political situation in France and absorb comments from the US Federal Reserve Chairman. For his part, US Federal Reserve Chairman Jerome Powell said in prepared remarks to Congress that more good inflation data would boost confidence in interest rate cuts. As recent readings indicate “modest additional progress” in prices, although first-quarter data did not support such greater confidence.

On the corporate front, Mercedes-Benz (-3.5%), BNP Paribas (-2.9%), Saint-Gobain (-2.7%) and Société Générale (-2.6%) were the worst performers. Likewise, oil and gas stocks were under pressure, with Repsol (-2.3%) and Eni (-1%) in particular, with BP down nearly 3.8% after the company said it expected lower refining margins and weak oil trading to hurt its shares from second-quarter earnings.

Also in stock markets, the S&P 500 and Nasdaq extended their record gains on Tuesday, adding 0.1% each, while the Dow Jones closed down 52 points after Federal Reserve Chairman Jerome Powell testified before the Senate. He had indicated that the US central bank was close to considering interest rate cuts and expressed optimism about signs of slowing inflation, noting that “more good data would bolster our confidence that inflation is moving sustainably toward 2%.” Also, the Consumer Price Index (CPI) and Producer Price Index (PPI) data are due out this week as earnings season gets underway.

According to electronic trading platforms, the financial sector led the market, with outstanding performances from JPMorgan Chase (+1.2%) and Bank of America (+2%), while materials stocks were the biggest losers. Among the giant companies that rose, Nvidia (+2.4%), Tesla (+3.7%), and Apple (+0.4%), became the first US company to surpass a market value of $3.5 trillion. Conversely, Microsoft shares fell 1.4%, and Salesforce shares lost 1.8%, which pressured the Dow Jones index.

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    EUR/USD Technical analysis and forecast:

    According to the performance on the daily chart attached, the neutrality of the performance of the euro against the US dollar EUR/USD has returned. Moreover, the bulls will not be able to control the trend without moving towards the resistance levels of 1.0880 and 1.0940 respectively. This supports the move towards the psychological resistance of 1.1000, which confirms the strength of the general upward trend. On the other hand, and for the same time frame, the support level of 1.0720 will remain important for the bears to control the general trend again. We expect the euro dollar price to remain around its current path until the reaction to the announcement of the US inflation figures tomorrow, Thursday.

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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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