EUR/USD Daily Forecast – Euro Shows Resilience in its Recovery

EUR/USD Sellers Failed to Protect Key Resistance

EUR/USD certainly saw an aggressive drop after it hit three-month highs in the late part of June. The recovery that started last week has erased about a third of that drop. It may not seem significant, but bears have not been able to contain the pair as it has been inching above important resistance levels.

Thursday’s volatile swings had led to a break above important resistance at 1.1265. However, a late day sell-off led to a fall back below the 100-day moving average. It also resulted in a doji pattern on a daily chart.

Despite this, the pair has continued to push higher, closing the week above the mentioned moving average and resistance level. This certainly is a show of strength for the pair and indicates that bears are not in control.

Powell Provided the Catalyst for Strength Last Week

Fed Chair Powell was perceived to be more dovish than expected in his testimony last week. The recent bout of dollar weakness has been contributed to this factor.

I think there are some upside risks for the greenback as the markets are once again considering aggressive easing at the end of the month. The earlier US jobs report had led to a parring of expectations with the futures market only pricing in a 25 basis point cut at the July meeting.

At the start of the week, the CME FedWatch tool shows probabilities for a 50 basis point cut creeping up to about a 1 in 4 chance. Bloomberg also published a piece last week saying that Morgan Stanley expects a 50 basis point cut.

My view here is distinctly different from that. After the Fed rhetoric at the start of the month, the strong jobs report, and last week’s inflation beat, I don’t think the Fed will ease aggressively in July.

Technical Analysis

The above daily chart shows, as mentioned above, the general lack of sellers around what seems to be an important area.

On this time frame, I think the next upside target is at 1.1305. I see support for the pair near the 50-day moving average, around 1.1250. The horizontal level that I mentioned around that area falls at 1.1265.

Bottom Line

• EUR/USD bulls are encouraged by Powell’s testimony from last week.
• It’s possible we may see positive sentiment for the pair fade a bit this week. This is in the absence of headline news that will cause the markets to believe the Fed will move aggressively at the end of the month.
• The pair should hold above 1.1250 to maintain the upside momentum.