Published on Jul 19, 2023

EUR/USD Price Analysis: Retracement from 17-Month High- 19-07-2023

EUR/USD Analysis

Key Points: -

The EUR/USD pair is under pressure after a sudden reversal from its peak in February 2022.
Optimistic growth in US Core Retail Sales, along with conflicting signals from the European Central Bank and a positive market sentiment, encourage Euro bulls as they reach a high not seen in several months.
Market participants are closely watching mid-tier data and various risk factors, as the US Dollar recovers from a 15-month low.

Today's Scenario: -

EUR/USD stays depressed near 1.1230 during the early hours of Wednesday’s Asian session, after retreating from the highest level in 17 months the previous day. That said, the US Dollar’s corrective bounce from the multi-month low joins the mixed signals from the European Central Bank (ECB) to prod the Euro pair buyers of late.

US Dollar Index (DXY) dropped to a fresh 15-month low on early Tuesday before bouncing off the 99.56 level, around 99.95 by the press time. In doing so, the greenback’s gauge versus six major currencies cheers mostly upbeat prints of the US Retail Sales, even if the headline figures eased. It should be observed, however, that the DXY has been sluggish of late, which in turn allows the EUR/USD pair to take a breather after reversing from a multi-month high.

On Tuesday, US Retail Sales growth for June came in as 0.2% MoM versus 0.5% expected and prior (revised). However, the Retail Sales Control Group marked 0.6% growth versus market forecasts of -0.3% and 0.3% previous readings. It should be noted that the US Industrial Production reprinted -0.5% for June compared to analysts’ estimations of 0.0%.

On the other hand, European Central Bank (ECB) Governing Council member Klaas Knot said on Tuesday, rate hikes beyond July are likely but not certain. Earlier in the week, European Union (EU) Commissioner for the Economy Paolo Gentiloni said that Eurozone inflation will be near the 2% target in 2024, rather than the ECB’s forecast for the said level for 2025.

Elsewhere, the market’s risk-on mood also puts a floor under the EUR/USD price. That said, sentiment improves on the positive performance of the US banks, as well as the risk-positive headlines surrounding China, which in turn allowed the Wall Street benchmarks to refresh the yearly top. It’s worth noting, however, that the benchmark US 10-year Treasury bond yields remain pressured around 3.78% while the two-year counterpart edges higher near 4.76% at the latest.

That said, the share prices of the top-tier US banks like Bank of America, Morgan Stanley and Bank of New York Mellon Corp rallied on Tuesday on news that higher interest rates had helped boost profits in the second quarter, shared via Reuters. “Signs of a revival in investment banking, which has been in the doldrums as higher rates and economic uncertainty put a damper on deals and trading, also drove share gains,” said the news.

Against this backdrop, Wall Street benchmarks rallied but the US Treasury bond yields edged lower while the US Dollar Index (DXY) initially dropped to a fresh 15-month low before bouncing off 99.56 level, around 99.95 by the press time.

Moving on, risk catalysts will be crucial to watch for clear directions amid a light calendar and mixed sentiment.

Diagram of EUR/USD: -

Economic Events: -

Buy Scenario: -

On the upside, the region between 1.1245 and 1.1250, followed by the multi-month peak around the 1.1275 zone, now represent immediate resistance levels before reaching the 1.1300 round-figure mark. The next significant hurdle is situated near the 1.1335 area. If surpassed, the EUR/USD pair could aim to reclaim the 1.1400 mark and extend its climb towards the 1.1450 region, en route to the psychological level of 1.1500 or even the yearly peak of 2022, till we do not advise to buy EUR/USD currency pair.

Sell Scenario: -

To the downside, the weekly low near the 1.1200 level is expected to act as immediate support. If sustained weakness occurs below this level, it could trigger a new wave of technical selling, potentially pushing the EUR/USD pair towards the 1.1145 support zone. In the event of further selling pressure, the 1.1100 round-figure mark is likely to provide strong support. However, a decisive break below this level would negate the positive short-term outlook. Till then we do not advise selling EUR/USD.