- During Monday’s European session, EUR/USD is expected to hover around 1.1650.
- Dovish comments from the Fed hinder the US dollar’s strength.
- Attention will be on developments in US-China trade negotiations.
After a slight uptick last week, the EUR/USD has settled on Monday, trading around 1.1650 during European hours. The technical landscape indicates that there’s a bullish bias, though it doesn’t quite reflect strong momentum yet.
On Saturday, Federal Reserve Governor Michelle Bowman noted that disappointing labor market figures raised concerns about its resilience. This, she believes, supports her view that three interest rate cuts might be necessary this year. “The clear softening in the labor market seems to outweigh inflation risks,” Bowman expressed.
Such insights make it challenging for the US Dollar (USD) to gain ground against others at the start of the week. It’s likely that investors might hold off on acquiring extensive USD positions, especially with key July inflation data set to be released on Tuesday.
Meanwhile, the clock is ticking for US-China trade talks, with an August 12 deadline approaching. If some progress occurs and deals can be struck, it could inject risk into the markets today, suggesting a possible extension of the deadline. In this scenario, the USD might lag behind. However, if the US and China impose new tariffs, market sentiment could lean towards caution.
EUR/USD Technical Analysis
The 4-hour chart reveals that the relative strength index (RSI) is above 50, but the EUR/USD remains below its 200-period Simple Moving Average (SMA), presently at 1.1670, indicating some hesitation among buyers.
Should the EUR/USD break above 1.1670 (200-period SMA) and hold that level as support, the next potential resistance could be around 1.1700, followed by 1.1760. On the downside, key support levels are pinpointed at 1.1625 (100-period SMA), 1.1570 (50-period SMA), and 1.1540, which marks a 38.2% retracement of the recent upward trend.
Euro FAQ
The euro is the currency used by 19 EU nations in the eurozone, ranking as the second most traded currency globally, behind the US dollar. In 2022, it constituted 31% of forex trading, averaging over $2.2 trillion in daily turnover. EUR/USD is the most frequently traded currency pair.
The European Central Bank (ECB), located in Frankfurt, Germany, serves as the reserve bank for the eurozone, overseeing interest rates and monetary policy to maintain price stability, whether that involves curbing inflation or supporting growth.
Inflation data for the eurozone is captured by the Harmonized Index of Consumer Prices (HICP). A rise in inflation above the ECB’s 2% target could necessitate interest rate hikes to regain control, impacting the euro’s attractiveness to investors.
Economic health indicators such as GDP, Manufacturing and Services PMI, and Employment figures can influence the euro’s value. Strong performance in these areas can lead to increased foreign investment and potential rate hikes from the ECB, bolstering the euro.
Trade balances are also crucial; they reflect the difference between exports and imports. A positive balance tends to strengthen the currency as demand from foreign buyers increases.
