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EUR/USD Price Analysis: Downtrendline resistance to cap gains ahead of US CPI

  • EUR/USD gains positive traction for the second consecutive day amid a softer USD.
  • The technical setup favors bullish traders and supports the prospects for further gains.
  • Political uncertainty in France could limit gains ahead of crucial US CPI report

The EUR/USD pair attracted buyers for the second consecutive day on Thursday and again approached the near four-week high touched on Monday. However, spot prices remain below the mid-1.0800 zone as traders await the release of US consumer inflation figures before opening fresh directional positions.

Looking ahead to key data risk, the growing acceptance that the Federal Reserve (Fed) will begin cutting interest rates in September keeps US Dollar (USD) bulls on the defensive and continues to lend some support to the EUR/USD pair. That said, poll results from the second round of the French parliamentary elections raise the possibility of a hung parliament. This could act as a headwind for the shared currency and limit any further appreciation move for the major pair.

From a technical perspective, the recent break through the 1.0800 confluence hurdle – which comprises the 50-day, 100-day and 200-day simple moving averages (SMAs) – favours bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and suggest that the path of least resistance for the EUR/USD pair is to the upside. That said, any subsequent move higher is likely to face stiff resistance near a downtrend line, currently around the 1.0880 zone.

That said, a sustained strength beyond it will be seen as a fresh trigger for bullish traders and will pave the way for further gains. Some follow-through buying beyond the 1.0900 level will reaffirm the constructive outlook and lift the EUR/USD pair towards the next relevant resistance near the 1.0960-1.0965 region. The momentum could extend beyond the March high, around the 1.0880 zone, and allow spot prices to reclaim the psychological 1.1000 level for the first time since early January.

On the other hand, any significant decline is likely to attract fresh buyers near the 1.0800 confluence resistance-turned-support breakout point. This should help limit the EUR/USD pair’s downside near the 1.0755-1.0750 horizontal zone. However, failure to defend such support levels could trigger some technical selling and drag spot prices below the 1.0700 level, towards challenging the June monthly low, around the 1.0665 region.

EUR/USD daily chart


Euro FAQs

The Euro is the currency of the 20 European Union countries that belong to the Eurozone. It is the second most traded currency in the world, behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily volume of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB), based in Frankfurt, Germany, is the reserve bank of the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s main mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main instrument is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher rates – generally benefit the Euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of the national banks of the Eurozone and six permanent members, including ECB President Christine Lagarde.

Eurozone inflation data, as measured by the Harmonised Index of Consumer Prices (HICP), is an important econometric data point for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, the ECB is forced to raise interest rates to bring inflation back under control. Relatively high interest rates compared to their peers usually benefit the euro, as it makes the region more attractive as a place for global investors to park their money.

Data releases measure the health of the economy and can influence the Euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment, but it can encourage the ECB to raise interest rates, which will directly strengthen the Euro. Conversely, if economic data is weak, the Euro is likely to fall. Economic data from the four largest Eurozone economies (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone economy.

Another important output for the euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly sought-after export products, its currency will appreciate due to the additional demand created by foreign buyers who wish to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

Source: Fx Street

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