EUR/USD technical analysis: German watch ZEW

The EUR/USD exchange rate hit a six-week high in the latest trades. Although shaken by resistance on the charts, the single European currency could remain supported in the coming days due to a faltering US dollar and more accommodative Chinese monetary policy. Europe’s single currency hit its highest level since opening days in July last week after a batch of figures from the Bureau of Labor Statistics indicated that a significant moderation in inflationary pressures in the United States may have begun. to work its way through the pipeline last month.

  • EUR/USD gains were halted at the resistance level of 1.0368, then quickly started falling again amid sell-offs, reaching the support level of 1.0160 at the time of writing. analysis.
  • The Euro has regained strength around 1.0361, which closely coincides with the 55-day moving average and the 61.8% Fibonacci retracement of the June decline from levels above 1.06.
  • The euro still holds many of its weekly gains.

Commenting on the performance of EUR/USD, Sean Osborne, Senior Currency Analyst at Scotiabank, said: “We are looking for EUR/USD support to fund a near-term upside of 1.02. Growth/recession/energy supply concerns remain a threat to the Euro outlook.

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The euro could benefit this week from the People’s Bank of China’s surprise decision on Monday to lower interest rates if the People’s Bank of China (PBoC) allows devaluation of the floating RMB to support the domestic economy. “The People’s Bank of China (PBoC) unexpectedly cut the one-year medium-term lending facility rate by 10 basis points to 2.75%,” says Carol Kong, currency analyst at the Commonwealth. Bank of Australia. “The announcements came amid much weaker than expected data on credit growth and activity in July,” he added, after warning that euro/dollar risk is likely to be tilted higher. the decline.

Sometimes a depreciation of the renminbi has the effect of pulling other currencies on its side, and when this happens, it can prevent the slower Chinese currency and the “lower beta” from falling in aggregate or trade-weighted terms, requiring intervention where the real objective is.

It all depends on whether the People’s Bank of China (PBoC) wants the currency to depreciate, but in this type of scenario the euro could benefit as it is one-fifth of the trade-weighted renminbi, making it a candidate. of choice for a support offer from the world’s largest foreign exchange reserves manager. “We were particularly surprised by the weakness in retail sales, as we believed China should register another month of modest monthly growth given support from some large purchases,” said Craig Botham, chief China economist. at Pantheon Macroeconomics. “There will likely be a further surge in Covid cases and a tightening of zero Covid restrictions, but we believe weak underlying demand is the main issue,” Bothham wrote in response to the rate cut. Monday.

Leaving aside issues related to the renminbi, Much of the outlook once again depends on the dollar, which will likely be very sensitive to the results and impacts of the extensive economic data that will be released in the United States over the next few days. So says Pooja Sriram, economist at Barclays. “While the sudden slowdown in inflation in July may lead to debate over whether to accelerate the pace of increases, Fedspeak’s latest statement indicates that it is still too early to expect any significant change. pricing policy.

Important events this week

The release of US retail sales on Wednesday and the July Federal Reserve meeting minutes are the most important events this week for the US dollar. They are not likely to have a significant impact on the outlook for interest rate policy in the United States, but they can affect the outlook for the economy. It is also likely to support the euro and other risky currencies; especially in light of recent indications that US inflation may be subdued.

However, along the way, the market should also pay particular attention to the Eurozone employment figures for July, which will also be released on Wednesday and will influence perceptions of the outlook for European economies and European Central Bank policies. (ECB). Generally, there will be room to move higher as conditions remain elevated with uncertainty over the near-term growth outlook in Europe due to lower natural gas supply.

Forecast of the euro against the dollar:

I still expect Euro gains against the Dollar EUR/USD to remain a sell target as the divergence in economic performance and the future of monetary policy tightening still favor US Dollar strength finally. Based on current performance, breaking the support at 1.0120 will support expectations for a move towards parity price and below. On the other hand, based on the performance on the daily chart below, the movement of the bulls towards the resistance levels at 1.0320 and 1.0400 will be important to change the overall upward trend.

Today, EUR/USD will react to the ZEW release of German Economic Sentiment, US Housing and Industrial Production data.

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