EUR/USD Price Outlook: Approaching a trendline breakout above 1.1700

EUR/USD Maintains Gains Above 1.1700

The EUR/USD currency pair is expected to hold onto profits above the 1.1700 level as the week opens.

Jerome Powell, the Chairman of the Federal Reserve, is set to revise the dovish outlook regarding interest rates.

This week, market participants are looking forward to inflation reports from the United States and key economies in the eurozone.

During the early trading session on Monday, the EUR/USD pair slightly exceed its gains from Friday, benefiting from a weaker US dollar. Comments from Powell indicated that the Fed might consider interest rate cuts due to growing concerns about the labor market.

As of now, the US Dollar Index (DXY), which measures the dollar against six major currencies, is struggling to hold its near four-week low of about 97.60.

On Friday, at the Jackson Hole Symposium, Powell mentioned that the central bank may need to adjust interest rates as the balance of risks has shifted. He noted, “With policies in restrictive areas, the changing balance of baseline outlook and risk may require us to adjust our policy stance.”

This week, close attention will be given to preliminary inflation figures from major eurozone countries and the US Personal Consumption Expenditure Price Index (PCE) data for July.

The EUR/USD is trading around 1.1740, moving from its July high of 1.1830. The short-term trend appears bullish as it trades above the 20-day exponential moving average (EMA), which is around 1.1652.

The 14-day relative strength index (RSI) fluctuates between 40.00 and 60.00, indicating a sideway movement.

Notably, if the pair surpasses Friday’s high of 1.1740, an upward move towards 1.1830 and a resistance level at 1.1900 seems possible.

Conversely, if it drops below Friday’s low of 1.1583, it could expose it to lower levels, with targets of 1.1528 on August 5 and 1.1392 from August 1st.

US Dollar FAQs

The US dollar (USD) is the official currency of the United States and is widely used in numerous other countries. As of 2022, it was the most traded currency globally, making up over 88% of forex transactions, averaging about $6.6 trillion daily. The dollar gained its status as the world’s reserve currency after World War II, eventually replacing the British pound. While historically backed by gold, the Bretton Woods Agreement in 1971 led to the abandonment of this gold standard.

The Federal Reserve’s monetary policy is the primary factor influencing the value of the US dollar. The Fed has two main objectives: maintaining price stability by controlling inflation and fostering full employment. It typically adjusts interest rates to achieve these targets. If inflation exceeds the Fed’s 2% goal, it tends to raise rates, benefiting the dollar. Conversely, if inflation falls below this target or if unemployment is high, the Fed may cut rates, which can weaken the currency.

In extreme scenarios, the Fed might print more dollars and implement quantitative easing (QE), significantly boosting credit flow in the financial system, especially when institutions become reluctant to lend. This last-resort strategy was famously employed during the 2008 financial crisis. QE often leads to a weaker dollar as it typically involves purchasing US government bonds from financial entities.

On the flip side, quantitative tightening (QT) refers to the process of the Federal Reserve halting bond purchases and not reinvesting in matured bonds. This generally tends to strengthen the US dollar.