EUR/USD Daily Price Forecast – EUR/USD Breaches 1.16 Handle over Subdued USD

The EUR/USD pair has rallied significantly during the day on Tuesday, reaching towards 1.16 levels. That’s a very bullish sign and as trading session continues to move forward into Wednesday’s Asian market hours, the pair has crossed over above 1.1610 handle indicating that august’s low of 1.1530 is now acting as a stable support on the downside. The market looks as if it is trying to rally from here and considering that the market has been consolidating between the 1.15 level at the bottom, and the 1.1850 level at the top, the market should continue to go back and forth and stay in this range for the rest of the summer. The pair is now challenging the resistance (former support) of the lower end of the pennant, currently located at 1.1622. A daily close well above that level would abort the bearish view put for by the pennant breakdown witnessed last Thursday. The uptick seen in during the Asian hours could be associated with the broad-based USD selling, likely triggered by a corrective rally in the Chinese yuan (CN).

Broad-based US Dollar Pullback Will Continue To Buoy The Sentiment Around EUR/USD In Short Term

Looking ahead, the pair could find acceptance above 1.1622 if the CNY continues to gain ground. Further, the fear gauge or the one-month (ATM) options market volatility (EUR1MO) has dropped to 6.2 from the recent high of 6.7 reached on August 7, adding credence to EUR’s recovery from the recent low of 1.1530. The currency pair is on pace to post a daily gain to snap a prior five-day losing streak. The euro was the second strongest currency in European trading session yesterday, lagging only the Australian dollar. From a broader perspective, the exchange rate has been trading within a consolidation since mid-May, similar to the inversely correlated U.S. dollar index (DXY). This week, the focus in terms of U.S. economic data will be on inflation data, with the latest consumer price index (CPI) figures scheduled for release on Friday. Analysts are expecting year-over-year CPI to remain unchanged at 2.9%.

The Euro bulls take a breather and await the US CPI figures for the next push higher which indicates that short term resistance can be found around 1.1622-1.1630 price range. However the pair has managed to hold onto gains above 1.16 handle for majority of Asian market hours. Meanwhile the US dollar weakness continues to persist, despite escalating US-China trade dispute. On the EUR-side of the equation, the gains may appear capped amid a revival of the political concerns surrounding Italy while weaker German 10-year yields could also keep the corrective rally limited. However, amid a lack of fresh fundamental drivers from Euro-land, broad-based US dollar pullback will continue to buoy the sentiment around EUR/USD ahead of the speech by the FOMC member Barkin scheduled at 1245 GMT. Expected support and resistance for the pair moving forward are at 1.1575 / 1.1530 and 1.1630 / 1.1665 respectively.