- The EUR/USD exchange rate is expected to remain under moderate pressure in the coming days, with focus on Eurozone inflation figures ahead of the Fed decision and US wage figures.
- According to reliable trading platforms, the EUR/USD rate has retreated from its July highs of 1.0948 and has now recorded three consecutive weeks of declines, consistent with a soft tone.
- Weakness is likely to be limited, with selling interspersed with upside days.
As for the outlook for the currency pair, we look for a gentle pullback to the 50-day moving average at 1.0811 in the coming days. Also, note that this is the approximate location of the 38.2% Fibonacci retracement from the 2024 high to low. Technically, a break of the EUR/USD support level of 1.0780 would reinforce the bears’ position of control over the trend.
We expect potential volatility in the euro exchange rate from Tuesday when the eurozone CPI inflation figures start to come in, with the initial focus on the German figure. According to the economic calendar, the state-level figures are released from 7am German time, which could give early guidance for the full German figure due later in the day. This, along with the Spanish CPI release, could give some direction for how the eurozone inflation figure will turn out mid-week. The eurozone is expected to post a 2.3% year-on-year figure, which is consistent with an ongoing process of deflation. The European Central Bank is expected to cut interest rates again in September, meaning it would take a big surprise in the data to have a lasting impact on the euro. Instead, it is the US dollar side of the equation that will provide the volatility this week. The Federal Reserve is due to release its policy decision on Wednesday. Moreover, there will be no change in US interest rates. We expect dovish guidance in line with expectations for the first interest rate in September. Now, the market is “fully priced in” for such an outcome, meaning the US dollar will rally if the Fed casts any doubt on the shot at starting its rate-cutting cycle in September. Furthermore, we expect the Fed to continue its new strategy of highlighting concerns that keeping interest rates unchanged for too long could negatively impact the labor market.
Concurrently, this is consistent with the Fed saying it believes it can afford to cut US interest rates before inflation falls to its 2.0% target. On Friday, the most important event for the US dollar comes when the US jobs report is released. If the data comes in below expectations, the market will price in more policy easing from the US Federal Reserve in the coming months, which will weigh on the dollar.
The US non-farm payrolls data for July is expected to show an increase of +178K jobs, with the unemployment rate remaining at 4.1%. This comes after a stronger-than-expected reading of +206K jobs in June.
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EUR/USD Technical analysis and forecast:
There is no change in my technical view of the performance of the Euro against the US Dollar EUR/USD as the general trend will remain bearish and breaking the support 1.0800 is possible and will strengthen the bears' control of the trend and thus prepare for stronger losses. Furthermore, the technical indicators will move towards strong oversold levels on the daily chart if the Euro Dollar price moves towards the support levels 1.0735 and 1.0600 respectively. On the other hand, and for the same time period, the psychological resistance 1.1000 will remain the most important for the upward shift of the general trend.
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