During the European trading session, the EUR/USD currency pair maintained its upward trend, reaching around the 1.0856 level and peaking at an intraday high of 1.0869.
This rally is largely due to a weaker US dollar, which lost ground despite hotter-than-expected June core Personal Consumption Expenditures (PCE) data from the United States. The core PCE inflation data, the Federal Reserve’s preferred inflation gauge, indicates persistent inflation, reducing the likelihood of early rate cuts by the Fed.
Despite this, the financial markets are pricing in interest rate cuts in September as certain. However, concerns about the Euro’s outlook and rising expectations of two more rate hikes by the European Central Bank (ECB) are key factors limiting further gains in the EUR/USD pair.
EUR/USD Pair Supported by US Inflation Data and Weak Dollar, Despite ECB Rate Hike Concerns
On the US front, the major currency pair moved higher despite the core Personal Consumption Expenditures (PCE) price index for June coming in hotter than expected. The PCE inflation report showed underlying inflation rose 2.6% year-on-year, above the forecasted 2.5%, and monthly inflation increased by 0.2%, up from the previous 0.1%.
As the Federal Reserve’s preferred inflation gauge, these persistently high figures lessen the chances of early rate cuts by the Fed, even though financial markets continue to anticipate rate cuts in September.
Meanwhile, the US Dollar Index (DXY), which measures the dollar’s value against six major currencies, dropped to around 104.30. The upcoming Federal Reserve monetary policy meeting on Wednesday is the next significant event, with the Fed expected to maintain its key borrowing rates at 5.25%-5.50%.
Investors will closely monitor this meeting for any indications on whether market expectations for future rate cuts are justified.
Therefore, the higher-than-expected US inflation data and the falling US Dollar Index have supported the EUR/USD pair, but concerns over ECB rate hikes may limit further gains.
EUR/USD Pair Rises Amid Eurozone Economic Concerns and ECB Rate Cut Expectations
On the EUR front, the EUR/USD pair rose despite investor concerns about the Euro’s outlook amidst multiple challenges. The Eurozone’s economic prospects are dim, particularly with Germany, its largest economy, facing significant struggles. On the data front, the Flash German Hamburg Commercial Bank (HCOB) Composite PMI for July contracted to 48.7 from 50.4, indicating a decline in private sector business activity.
Dr. Cyrus de la Rubia, Chief Economist at HCOB, highlighted a serious economic contraction driven by a steep drop in manufacturing output, predicting a 0.4% GDP shrinkage in Q3. Meanwhile, the rising expectations of two more rate cuts by the European Central Bank (ECB) have pressured the Euro. ECB policymakers believe these cuts are necessary for economic revival and expect inflation to return to 2% by 2025.
Moving ahead, the upcoming Eurozone Harmonized Index of Consumer Prices (HICP) data for July will be a key indicator for future ECB policy decisions, with traders anticipating policy easing in September.
EUR/USD Price Forecast
The EUR/USD is currently trading at $1.0855. On the 2-hour chart, an ascending triangle pattern is limiting upward momentum near the $1.0865 level, which is also forming a triple top pattern. This indicates a significant resistance level that the EUR/USD has struggled to break through. The 50-day Exponential Moving Average (EMA) at $1.0859 is also providing resistance, reinforcing a bearish bias around this area.
Key price levels to watch include the pivot point at $1.0865. Immediate resistance is observed at $1.0865, with further resistance levels at $1.0901 and $1.0919. On the downside, immediate support is noted at $1.0842, followed by $1.0826 and $1.0806.
Technical indicators suggest a cautious outlook. The Relative Strength Index (RSI) stands at 51.37, indicating neutral momentum but with a slight bearish tilt. The 50 EMA’s position suggests that the EUR/USD is facing downward pressure at the current levels.
In conclusion, the technical outlook for EUR/USD remains bearish below the $1.0865 level. Traders should consider selling below this level, as maintaining below the pivot point could lead to further downward movement toward the support levels of $1.0842 and $1.0826. Conversely, a break above the pivot point may indicate potential upward pressure.
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