The EUR/USD exchange rate hit a six-week high in recent trading. Although it is faltered 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. The European single currency surged to its highest level since opening days in July last week after a batch of numbers from the Bureau of Labor Statistics indicated that significant moderation in inflation pressures in the US may have started making its way through the pipeline last month.

• The EUR/USD pair’s gains stopped at the resistance level of 1.0368, and then quickly returned to decline amid profit-taking sales, to reach the support level 1.0160 at the time of writing the analysis.
• The euro recovered its 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 EUR/USD performance, Sean Osborne, Senior FX Analyst at Scotiabank said, “We are looking for EUR/USD to fund support at 1.02 higher in the near term. Growth/recession/energy supply concerns remain a threat to the euro outlook.”

The Euro may benefit this week from the surprise decision of the People’s Bank of China on Monday to cut interest rates if the People’s Bank of China (PBoC) allows the devaluation of the floating RMB in order to support the domestic economy. “The People’s Bank of China (PBoC) unexpectedly lowered 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 they warned that euro/dollar risk is likely to be tilted to the downside.

Sometimes a depreciation of the renminbi has the effect of pulling other currencies on its side, and when that happens it can prevent the slower Chinese currency and “lower beta” from declining in aggregate or trade-weighted terms, necessitating intervention wherever the actual target is.

Much depends on whether the People’s Bank of China (PBoC) wants the currency to depreciate, but in this kind of scenario the euro could benefit as it represents one fifth of the trade-weighted renminbi, making it a prime candidate for a supportive offering from the world’s largest manager of currency reserves. “We were particularly surprised by the weak retail sales, as we thought China should deliver an additional month of modest monthly growth given the support of some big ticket purchases,” says Craig Botham, chief China economist at Pantheon Macroeconomics. “There is likely to be a renewed rush in Covid cases and a tightening of zero Covid restrictions, but we believe weak underlying demand is the main problem,” Bothham wrote in response to Monday’s rate cut.

Putting renminbi matters aside, much about the outlook once again hinges on the dollar, which is likely to be highly sensitive to the results and impacts of plentiful economic data due to be released from the US over the coming days. So says Pooja Sriram, an economist at Barclays. “Although the sudden slowdown in inflation in July may lead to debate over whether to move to an increased pace of increases, the latest Fedspeak release indicates that it is still too early to expect a meaningful shift in price policy.”

Important events this week

The release of US retail sales on Wednesday and the minutes of the Federal Reserve’s meeting in July are the most important events of this week for the US dollar. They are not likely to have a significant impact on the US interest rate policy outlook, but they may 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 inflation in the US may be moderate.

However, along the way, the market is also likely to pay close attention to the Eurozone employment figures for July, which will also be released on Wednesday and will influence perceptions of the outlook for Europe’s economies and European Central Bank (ECB) policies. Typically, there will be room to move to the upside with conditions that remain high with uncertainty about the near-term outlook for growth in Europe due to lower natural gas supply.

Euro forecast against the dollar:

I still expect that the euro’s gains against the dollar EUR/USD will remain a target for selling, as the divergence in economic performance and the future of monetary policy tightening is still in favor of the US dollar’s ​​strength in the end. According to the current performance, breaking the 1.0120 support will support expectations of moving towards the parity price and below it. On the other hand, according to 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 general trend to the upside.

Today, the EUR/USD will react to the ZEW release of German economic sentiment, US housing, and industrial production data.

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In the same trading path for the past week, the price of the EUR/USD currency pair is moving during this important week’s trading. This is amid strong bearish momentum, which moved on its impact towards the 1.0396 support level. It settled around the 1.0450 level at the time of writing the analysis, before announcing the reading of the ZEW index of German economic confidence. The euro tumbled due to a toxic mix of domestic and international headwinds but will likely remain under pressure in the coming days if US bond yields and the US Federal Reserve’s policy outlook continue to dampen risk appetite.

The currency pair’s struggles increased in the forex market after US inflation figures surprised to the upside expectations for the month of May on Friday and prompted the market to revise its expectations for US interest rates in the coming months. That data lifted US bond yields and dollar exchange rates while fueling an early selloff in global stock markets that weighed heavily on many currencies, although the Euro was also struggling in the wake of last week’s historic European Central Bank decision.

The euro was unable to capitalize when the European Central Bank said last Thursday that it would start raising interest rates in the euro zone in July and that it expects to raise borrowing costs in a sustainable manner over the coming months. Many analysts say this reflects market concerns about higher rates. It means the bond markets in southern Europe. The European Central Bank also announced a plan to use the reinvestment of the €1.85 trillion bond portfolio obtained through the Pandemic Emergency Purchase Program in order to prevent disproportionate and destabilizing increases in financing costs for the most financially fragile eurozone members.

This has done little to prevent markets from expressing their concerns about how southern European economies and bond markets will perform as interest rates rise in the bloc, and these kinds of concerns tend to weigh on the euro, which may now be more likely to strengthen the dollar. Commenting on the outlook, Silvia Ardajna, chief European economist at Barclays, said, “The risk of a repeat of a summer like 2011 has increased as the market may want to find out more about conditions (spread levels and growth velocity) that the ECB may view as weak in monetary policy transmission.”

According to the technical analysis of the pair: The general trend of the EUR/USD pair is to the downside and the breach of the support 1.0400 supports a stronger control of the bears on the trend. Currently, the closest trend targets are the support levels 1.0380 and 1.0290, those levels are sufficient to push the technical indicators towards strong oversold levels from which one can think of buying opportunities. The EUR/USD currency pair may remain under downward pressure until the US Central Bank’s monetary policy decisions are announced tomorrow.

On the upside, the breach of the 1.0600 and 1.0755 resistance levels will have an impact on the bulls’ sentiment for the move.

The EUR/USD exchange rate was unable to escape from the bottom of its recent low and entered the new week’s trading at the risk of further losses. The losses could see the single European currency slide towards some of its lowest levels since the first half of 2017 throughout the year during upcoming days. With the beginning of this week’s trading, the price of the EUR/USD pair moved in a range between the level of 1.0494 and the level of 1.0593 in the same ranges of the last trading sessions.

The Euro’s recovery has been attempted repeatedly last week as well as on Friday before the weekend with data from European Central Bank policy makers indicating that the timing of an initial rate hike in the Eurozone is likely to approach. European Central Bank Governing Council member Francois Villeroy de Gallo said on Friday that Frankfurt could raise the negative deposit rate of -0.5% “to positive territory” by the end of the year, while Executive Board member Isabel Schnabel suggested on Monday that the initial rise It may come as soon as July.

However, the EUR/USD exchange rate was unable to withstand any of its attempts to recover, and it may now be at risk of extending its recent streak of losses with a break below the 1.05 level over the coming days.

Juan Manuel Herrera, strategist at Scotiabank says: “There are few notes on the eurozone calendar over the next two weeks other than speeches from the European Central Bank, but markets seem to be in a safe place for the ECB’s price bets.” He added, “The technical picture for the euro continues to indicate more losses to the 1.04 level, after the consolidation period that lasted seven sessions. The analyst warned that the euro’s trading (mostly confined between 1.05 and 1.06 levels) helped it out of the oversold area on the RSI.

The euro’s ability to recover against the dollar has been hampered by rising US bond yields and economic risks associated with the currently stalled EU push towards a Russian oil embargo, although the single European currency faces other fresh and headwinds this week as well. This comes after it was widely reported that Chinese Prime Minister Li Keqiang called for intensified efforts by the authorities to save jobs and support families, while battling the repercussions of measures to contain the Corona virus in major urban centers, including Shanghai and Beijing.

“The employment situation is deteriorating along with the rest of the economy,” says Craig Botham, chief China economist at Pantheon Macroeconomics. All April PMIs point to high unemployment, despite government promises to support companies affected by the zero-Covid-19 policies.

The deteriorating economic background and the government’s increasing willingness to support Chinese growth pose downside risks to the renminbi and upside risks for the USD/CAD pair, which in turn indicates continued headwinds for many other currencies relative to the US dollar including the euro. To the extent that these factors add more to the baggage around the ankles of the euro against the dollar, it may be enough to see the euro drop below the 1.05 level and towards the 2017 lows around 1.0344 during the opening phase of the week’s trading.

According to the technical analysis of the pair: There is no change in my technical view of the price performance of the EUR/USD currency pair. The general trend is still bearish, and a breach of the 1.0500 support will increase the bears’ control over the trend, and therefore move towards stronger support levels and the closest ones after that 1.0435 and 1.0300, respectively. As mentioned before, continuing weaknesses – divergence in economic performance, the future of central bank policy tightening and the Russo-Ukrainian war support the current trend. On the upside, without breaching the resistance levels 1.0795 and 1.1000, the general trend of the EUR/USD will remain bearish, and the currency pair will be affected today by the announcement of the German ZEW index reading.

Eurodollar Outlook: HSBC cut its forecast last week and now expects the euro to reach $1.03 by the end of June and parity in the first months of next year.