EUR/USD Daily Forecast – Euro Struggling to Regain Upside Momentum

EUR/USD is consolidating within a range in the early week after a momentum driven rally last week. I suspect this may continue into tomorrow when US CPI figures are scheduled for release.
Jignesh Davda

US Inflation Data – Probably the Highlight for the Week for EUR/USD

The theme last week was diverging monetary policy expectations with the Fed tilting towards the dovish side, while the ECB remained relatively confident regarding the euro area economic outlook.

For the Fed, the focus is on inflation. Fed Chair Powell discussed at length last week that a small but sustained down tick in inflation can have a negative impact, which might lead the Fed to consider easing.

Since the market has been focused on easing potential from the Fed, a weak inflation reading would support the cause, and provide a catalyst for further euro strength.

Of course, there is some risk of an uptick in inflation, and for this reason, I suspect that EUR/USD will struggle to regain upside momentum ahead of the economic release.

Technical Analysis

On a 4-hour chart, EUR/USD seems to be struggling at horizontal resistance residing at 1.1318. This level was important resistance in April and had acted as support several times prior to that.

EURUSD 4-Hour Chart

The pair first tested the level at the North American open. Several attempts since then has been met with sellers. In the early European session, traders are once again attempting to lift the pair above it, but so far, don’t seem to be successful at it.

For this reason, I consider 1.1318 as a line in the sand over the near-term. I think we can spike above it, but unless there is a 4-hour close above the level, I expect the pair will remain range bound.

EURUSD Hourly Chart

On an hourly chart, EUR/USD has been grinding higher since the North American open on Monday. The upside doesn’t have a lot of momentum, and I would not rule out that a flag pattern is forming.

The downside shows 1.1294 has been respected as support and resistance. The level represents the 38.2% Fibonacci level measured from the years high to low. I think we might potentially dip below the level but I expect buyers to step in around 1.1280

Bottom Line

  • I don’t expect much volatility ahead of the US inflation data release on Wednesday.
  • Friday’s high is key resistance. In the absence of news flows, I expect rallies towards it to get sold ahead of the inflation release.
  • Range support should be just below yesterday’s low, around 1.1280.

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