- The EUR/USD exchange rate didn’t enjoy its strong gains for long last week, which saw it reach the 1.0948 resistance level, its highest in four months.
- The pair quickly faced selling pressures, pushing it down to the 1.0875 support level, settling around 1.0885 at the start of this week’s trading.
- According to forex market trends, the USD is taking the lead again amid a decline in global stock markets, driven by new restrictions on technology exports to China and a global IT shutdown.
According to reliable trading platforms, Stock markets in Europe and Asia declined amid a global shutdown of services following a major failure in Microsoft-based software. The failure related to Microsoft’s anti-virus component affected banks, airports, trains, news stations, health services and many other companies. The scale of the outage reveals the centrality of technology, as a group of major companies have proven their importance in managing the global economy.
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Bearish markets generally benefit the USD, considered a "safe haven" currency. Commenting on performance and influencing factors, Maher Drag, Head of Research for the Americas at HSBC, said, "The US dollar, being a safe haven, is where money is invested." He added, "The USD is stronger this morning, with focus on the cloud-related tech service outage and President Biden’s election prospects."
Microsoft announced that it had identified and corrected the issue, easing some of the worst selling pressures and leading to a slight pullback in the USD. However, the service outage comes at a sensitive time for markets already grappling with new strict restrictions on tech exports to China proposed by the Biden administration. Ravi Boyadjiian, Chief Investment Analyst at XM.com, commented, “Stock markets were mostly in the red.” Moreover, this underscores the rising fears of a new trade confrontation between China and the US.
For its part, the Biden administration has told allies that it is considering using the toughest trade restrictions available if companies such as Tokyo Electron Ltd. continue to do so. ASML Holding NV is giving the country access to advanced semiconductor technology.
Overall, the US dollar’s rally may be short-lived as the fundamentals that have driven markets to record highs remain intact. Moreover, the possibility of the Federal Reserve cutting US interest rates later this year could weigh on the dollar, analysts say.
George Vessey, Head of Currency Analysis at Convera, stated, “Markets are pricing in six US rate cuts over the next nine policy meetings, with the benchmark rate stabilizing around 4% exactly one year from now. This is bearish for the USD.”
The path toward a Fed rate cut will become more focused next week amid new indicators of slowing inflation and economic activity. Economists expect the personal consumption expenditures (PCE) price index, excluding food and energy, to rise by 0.1% in June for the second consecutive month. This would reduce the annual core inflation rate to its slowest pace this year, below the Fed’s 2% target. The monthly inflation report, part of the personal income and spending reading, will follow the government’s preliminary estimate of second-quarter GDP. Forecasters expect an annual rate of 1.9%, after a 1.4% pace in the first three months of the year.
That would mark the slowest consecutive quarter of economic activity in two years, and combined with moderating job and wage growth, gives Federal Reserve policymakers room to begin easing.
U.S. central bankers next meet on July 30-31, and while the chances of a rate cut are low, investors see a quarter-point cut at their September meeting as a virtual lock. Concurrently, Traders have priced in changes of more than 90% after the June inflation report showed the headline figure slowing to 2.7% on the year. However, an acceleration in core price pressures at the three-month moving average could prompt some policymakers to pause.
EUR/USD Technical analysis and forecast:
According to the performance on the daily chart above and with the recent selling, the EUR/USD price is still in a correction phase upwards. Moreover, if it moves towards the support level of 1.0775, it will be a strong threat to that and the hopes of the rise will evaporate, and then expectations will return to the future psychological support of 1.0600 again. On the other hand, the psychological resistance level of 1.1000 will remain the most important for the strength of bulls' control over the trend. Ultimately, we expect a quiet trading session today until the reaction to the results of the US economic data this week.
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