Published on Jul 18, 2023

Euro Bulls Target 1.1280: EUR/USD Analysis and Outlook as on 18-07-2023

EUR/USD Analysis

Key Points: -

The EUR/USD pair experiences a slight upward movement due to hawkish signals from the European Central Bank (ECB) and the retreat of the US Dollar.
In September, the ECB's Nagel highlights the persistence of inflation, favoring a potential interest rate hike. Additionally, the ECB's Vasle emphasizes the strength and resilience of core inflation.
The US Dollar bulls face mixed sentiment and unimpressive US data ahead of the release of US Retail Sales figures.
While struggling to surpass a significant resistance level, the bulls closely monitor the ECB's discussions and also keep an eye on second-tier US data for clearer market directions.

Today's Scenario: -

EUR/USD buyers continue to test the resistance level at 1.1250 for the third consecutive day during Tuesday's early Asian session. This keeps the currency pair near its highest levels since February 2022. The strength of the Euro can be attributed to the tightening stance of the European Central Bank (ECB) and the fall of the US Dollar. However, there is a cautious sentiment in the market ahead of today's important US Retail Sales data for June, contributing to a mixed mood among buyers of the major currency pair.

Yesterday, ECB policymaker Boštjan Vasle expressed the view that policy tightening should be continued in the next meeting. He emphasized the resilience and high core inflation, favoring a more hawkish approach. ECB policymaker and Bundesbank Chief Joachim Nagel echoed a similar sentiment, stating that he expects the ECB to raise interest rates by 25 basis points later this month. He also highlighted the persistent nature of core inflation in the Eurozone. However, he mentioned that the decision for the September meeting will depend on the incoming data.

It is important to note that concerns about Germany's recession and the recent slowdown in China's economic recovery are impacting Euro buyers. Despite unimpressive domestic data, the US Dollar is finding some support. Yesterday, the New York Empire State Manufacturing Index for July declined to 1.1 from a previous reading of 6.6, below the market forecast of 0.0. Initially, this data did not have a significant impact on the US Dollar Index (DXY) sellers, but it later weighed on the DXY, which had seen a recovery based on positive readings from the University of Michigan's Consumer Sentiment Index and consumer inflation expectations for the same month.

Furthermore, the resurfacing tensions between the US and China and the market's consolidation ahead of the Federal Open Market Committee (FOMC) Monetary Policy Meeting in late July are also supporting the EUR/USD bulls.

In this scenario, Wall Street closed with minor gains, while US Treasury bond yields remained under pressure.

Looking to break the key resistance level, focus will shift to US retail sales data for June, which is expected to rise by 0.5% compared to the previous reading of 0.3%. Additionally, the outcome of the ECB talks and the US Industrial Production data for June, expected to show a decline of 0.1% compared to the previous reading of -0.2%, will be significant factors to monitor.

Diagram of EUR/USD: -

Economic Events: -

Buy Scenario: -

EUR/USD maintains its bullish momentum within a trading range of 50 pips above 1.1200, with the upper boundary around 1.1250 being tested. The Euro's strength is a result of broad weakness in the US Dollar and is supported by hawkish comments from officials at the European Central Bank (ECB). The session is relatively slow as market participants await the release of key US Retail Sales data for June.

Notably, the currency pair's successful trading above the 50-day and 100-day Simple Moving Averages (SMAs) and the rising support line established a week ago, along with the positive Relative Strength Index (RSI), which is not in overbought territory, provide optimism for EUR/USD buyers to overcome the 1.1250 resistance level.

However, the Euro bulls face several levels that acted as barriers in late 2021 and early 2022, particularly near 1.1280, before redirecting them to the previous yearly high around 1.1500, till we do not advise to buy EUR/USD currency pair.

Sell Scenario: -

On the downside, intraday bearish pressure for EUR/USD is challenged by the 50-day SMA and the lower boundary of the aforementioned trading range, located near 1.1230 and 1.1200, respectively.

If the EUR/USD sellers take control, breaking the convergence of the 100-day SMA and the upward-sloping support line from July 6, around 1.1175, would be a key support level to watch. Till then we do not advise selling EUR/USD.