Key Points: -
- EUR/USD maintains its rebound from Friday, reaching weekly highs above 1.0950.
- The recent US jobs report dampens expectations of a hawkish rate hike stance from the Federal Reserve.
- Attention now turns to Germany's ZEW survey and US Consumer Price Index (CPI) data, which are key indicators to watch this week.
Today's Scenario: -
EUR/USD is holding steady above 1.0950 and is near the eight-day highs of 1.0975 reached on Friday. The pair is currently consolidating last week's gains, with the market starting off the week relatively quietly.
Investors are digesting the volatile trading activity seen on Friday in response to the US labor market report. The report fueled a further recovery in the EUR/USD pair from the 1.0830 region. The main currency pair rose more than a full figure on Friday as the US Dollar suffered heavy losses due to disappointing US payrolls data. The non-farm payrolls for June came in at 209,000, falling short of the estimated 225,000. Moreover, there were significant downward revisions to the NFP figures for May and April, indicating a slowdown in the job market.
The wage inflation data, measured by Average Hourly Earnings, showed a growth of 0.4% in June, matching the estimate and the revised figure for May. This data, along with the weak jobs report, led investors to believe that the Federal Reserve may not be as hawkish as initially anticipated. Consequently, EUR/USD rallied towards 1.1000 at the expense of the US Dollar.
Currently, the markets are pricing in around a 70% probability of a pause in Fed rate hikes in September, following an expected 25 basis points rate hike by the central bank this month.
Mixed commentary from European Central Bank (ECB) officials over the weekend has somewhat limited the Euro's upside potential. ECB Governing Council member Francois Villeroy de Galhau stated that Eurozone rates will soon reach their peak, but it will be more of a high plateau rather than a sharp peak. Another ECB Governing Council member and Bank of Portugal Governor, Mario Centeno, expressed his expectation of Eurozone inflation being below 3% by the end of 2023.
Traders will closely watch the upcoming Chinese inflation data as it could significantly impact risk sentiment and US Dollar valuations, thereby influencing the EUR/USD price action. Additionally, the Eurozone Sentix Investor Confidence data for July, scheduled for release later on Monday, will be in focus in the absence of major US economic data. Throughout the week, traders will pay close attention to Germany's ZEW survey and the US Consumer Price Index (CPI), which will have an impact on EUR/USD trading.
Diagram of EUR/USD: -
Economic Events: -
Buy Scenario: -
From a technical perspective, indicators on the daily chart remain in positive territory, indicating the potential for further appreciation in the near term. However, bullish traders may prefer to wait for a convincing breakout above a descending trend-line obstacle, which extends from the May swing high and currently resides around the 1.0980-1.0985 area. If such a breakout occurs, the pair could retest the June swing high around the 1.1010 zone. Further buying pressure has the potential to drive the pair towards the resistance levels of 1.1050-1.1060, with the next significant barrier located just before the 1.1100 mark, which could act as a pivotal point, till we do not advise to buy EUR/USD currency pair.
Sell Scenario: -
On the downside, the immediate support lies around the 1.0930 area, followed by the psychological level of 1.0900. Failure to hold above these support levels may negate the positive outlook and expose the pair to further downside pressure, potentially leading to a retest of the 100-day SMA support around the 1.0830 region. If the decline continues, the pair could drop towards the 1.0800 mark, and a break below that level may accelerate the fall towards the horizontal support at 1.0760 before targeting the round-figure mark of 1.0700. Till then we do not advise selling EUR/USD.
Support and Resistance Level: -
S1 1.0898 - R1 1.1004
S2 1.0829 - R2 1.1042
S3 1.0792 - R3 1.1110