EUR/USD Daily Forecast – Euro Retreats to Test Range Support
The Dollar is Bouncing Higher in the Early Week
The trade-weighted US dollar index (DXY) is trying to post a second consecutive day of gains. DXY caught a bid after testing its 200-day moving average on Friday. Most of the major currencies are in the red in the early week as a result of the dollar bounce. The exceptions are the antipodean currencies.
There is some clear overhead resistance in play for DXY. The index is currently testing its 100-day moving average. Slightly above it, the 50-day moving average comes in play to offer further resistance.
The upside dollar resistance and range support in EUR/USD suggests a range might play out.
On the fundamental side, a similar conclusion can be made. Last week, it was Fed Chair Powell that triggered a broadly weaker dollar from a testimony that was perceived to be more dovish than expected.
The markets will look to incoming data to further assess easing potential at the Fed meeting that will take place at the end of the month. I think the most influential data release is the first release of second quarter GDP. Perhaps until then, we may see a continued slowing of momentum in EUR/USD and the dollar pairs.
Also, as mentioned in yesterdays’ forecast, I think the excitement from Powell’s testimony will fade a bit in the new week. The rationale behind this is because it looks like the futures markets are once again getting ahead of themselves in pricing in aggressive easing later this month. The odds of a 50 basis point cut was last seen increasing to a 1 in 3 chance.
EUR/USD is last seen testing a confluence of support. The confluence consist of a horizontal level at 1.1237, range support, and the 50-day moving average.
The pair certainly looks a bit heavy in the early week, but perhaps a catalyst is not in place for the pair to break down here. Also keep in mind the overhead resistance in the inversely correlated dollar index.
- We may see a slowing of volatility until further data is released that stands to impact rate cut odds.
- The pair is testing a confluence of support at 1.1237.
- I think near-term rallies will be met with sellers at 1.1265 resistance.