EUR/USD Forecast: Euro Rises, But Fed Chatter Could Halt the Recovery

Highlights

• EUR/USD gains to $1.08956, despite a shaky start and early low of $1.08659 on Monday.
• Anticipated surge in the Eurozone account: €11.3B deficit to a promising €22.0B surplus.
• FOMC members Tom Barkin, Michelle Bowman, and Austan Goolsbee are in focus today, who may deliver EUR/USD shifts.

Monday Overview

The EUR/USD found much-needed support at the start of the week, gaining 0.25% to end the Monday session at $1.08956. A mixed start to the day saw the EUR/USD slip to an early low of $1.08659. However, risk appetite picked up following the disappointment of the PBoC Loan Prime Rate settings, sending the EUR/USD to a session high of $1.09137.

EUR/USD Trajectory Remains at the Mercy of the Dollar

It is a quiet Tuesday on the European economic calendar. Eurozone current account figures for June will draw interest early in the European session.

Economists forecast the Eurozone current account balance to surge from an €11.3 billion deficit to a €22.0 billion surplus, a bullish EUR/USD price scenario. However, investors should consider the underlying report and understand the reasoning behind a jump in the current account balance. Influence from trade will likely be a focal point amidst the weak demand environment.

While the euro area economic calendar is on the light side, ECB commentary will move the dial. However, no ECB Executive Board members are on the calendar to speak today, leaving chatter with the media to move the dial.

Investors responded favorably to an ECB podcast from Friday, where ECB Chief Economist Philip Lane said the Eurozone should avoid a deep or sustained economic recession. In contrast, the US economy is running hotter than expected, which could see the ECB cut rates first to evade a sustained slowdown.

Focus Turns to the Housing Sector ahead of the Wednesday PMIs

The US Housing Sector will be in the spotlight today. With 30-year mortgage rates sitting at 7.09%, a continued decline in existing home sales could signal the beginning of a housing market crisis. However, with sustained wage growth, a tight labor market, and elevated consumer confidence, a further decline is unlikely to spook investors,

Economists forecast existing home sales to decline by 0.5%. Existing home sales slid by 3.3% in June. Lower mortgage rates would likely boost demand, with the NAR considering current inventories insufficient to meet ‘pent-up demand’ once the floodgates open.

Beyond the economic indicators, FOMC member commentary also needs consideration before the looming Jackson Hole Symposium. While investors expect Fed Chair Powell to stick to the script on Friday, Powell is known to throw curveballs that could fuel uncertainty ahead of the Powell speech.

FOMC members Tom Barkin, Michelle Bowman, and Austan Goolsbee will deliver speeches today. Voting members Bowman and Goolsbee will have more sway.

EUR/USD Price Action

Daily Chart

The Daily Chart showed the EUR/USD above the 1.0900 – $1.0850 support band. Despite the bullish Monday session, the EUR/USD sat below the 50-day EMA while holding above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

Looking at the 14-Daily RSI, the 44.25 reading reflects bearish sentiment. The RSI aligns with the 50-day EMA, signaling a fall through the $1.0900 – 1.0850 support band to target the 200-day EMA and $1.08. However, a EUR/USD move through the 50-day EMA would give the bulls a run at the $1.1015 – $1.1060 resistance band.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD sits above the $1.0900 – $1.0850 support band. This morning, the EUR/USD broke through the 50-day EMA while remaining below the 200-day EMA, sending bullish near-term but bearish longer-term price signals.

The 14-4H RSI at 56.69 reflects bullish sentiment, with buying pressure outweighing selling pressure. Significantly, the RSI signals a breakout from the 50-day EMA to target the 200-day EMA and the $1.1015 – $1.1060 resistance band. However, a fall through the 50-day EMA would bring the $1.0900 – $1.0850 support band back into play.