EUR/USD Daily Forecast – Euro Area Inflation Falls Short

Steady Decline in Inflation Continues

Consumer prices in the euro area rose 1.0% in the year to July, down from 1.3% in June and 2.2% from the prior year. Annual CPI figures have been steadily declining since they topped out in the summer of last year. Core CPI came in at 0.9% which was in line with expectations. There isn’t anything scheduled for the remainder of the session in terms of economic data.

The highlight this week in terms of economic events is likely to be speeches from several Fed members. The markets will particularly pay attention to Powell’s speech on Friday as there is increasing expectation that he will signal the go-ahead for a rate cut in September.

Aside from Fed speech, PMI data from several euro area economies stand to bring volatility on Thursday. Minutes from the latest ECB and Fed meeting will also be released the same day.

Technical Analysis

There have been some mixed signals on the EUR/USD weekly chart. At the start of last week, a candlestick pattern suggests reversal potential, and that dips would likely be bought. That wasn’t the case, and following a rather sharp decline last week, a bearish engulfing candle has now set the tone.

The latest weekly candle print brings the directional bias back to bearish even though the shorter term technical outlook shows potential for a bit of EUR/USD upside in the early week.

One thing to keep in mind with EUR/USD is that the pair has displayed rangebound type price action for quite some time. It’s been rare to see a sustained breakdown in the pair when looking at a daily chart.

The hourly chart shows some upside potential as the pair has broken higher from a descending trend channel. Also, it has held above support at 1.1075. This level marks the lowest daily close for 2019 and continues to be the first line of defense.

Resistance is found at 1.1118 which was a prior support level that held the pair higher on several attempts in the second quarter. Bulls will want to see a daily close above it to give the current recovery a chance.

Bottom Line

• EUR/USD shows recovery potential, at least in the near-term.
• A pivotal level to the upside is 1.1118.
• A bearish engulfing candle on a weekly chart suggests rallies will be sold into.