Fundamental analysis of EUR/USD

The EUR/USD currency pair faced mild volatility, trading at 1.08820. 

Friday saw a slight rebound amid US economic measures and hawkish sentiment from the Federal Reserve. The short-term rebound ended a five-day decline that had previously seen a six-week low. There are many factors influencing these movements. In the context of the European economy, the final Eurozone inflation data for July is in focus. With core inflation stable at 5.5%, any correction in this preliminary figure is possible. At the same time, the overall inflation rate fell slightly from 5.5% to 5.3% for the same month. These high inflation figures have put the European Central Bank in a difficult position, forcing it to adjust monetary policy to meet inflation targets. The main strategy is to raise interest rates, cut spending overall and reduce demand-driven inflationary pressures. ECB Chief Economist Philip Lane is expected to elaborate on the role of banks in fighting inflation as part of the ECB podcast. His comments are highly anticipated as they could have an impact on EUR/USD, especially regarding the final inflation statistics and the ECB's inflation-fighting strategy. 

On the other hand, the US presented a solid economic calendar for the week. Although no major economic news is expected for the foreseeable future, the latest data on US retail sales, unemployment insurance claims and manufacturing sector business activity indices from the FRB Philadelphia are in favor of a more active monetary policy from the Federal Reserve. Such views are supported by the minutes of the last FOMC meeting and comments from its members, which suggests the possibility of a rate hike at the next meeting in September. The dollar was supported by many indicators. Various fluctuations, such as the rise in US 10-year government bond yields and the recent US CPI report, hinted at continued inflationary pressures. In addition, strong US macroeconomic data emphasized the resilience of the US economy, supporting the Federal Reserve's disciplined approach. This tough stance, combined with deteriorating economic conditions in countries such as China, has heightened concerns about the health of the global economy. This dynamic underscores the dollar's relative advantage as a safe-haven bet against the euro. At the same time, there is talk in the financial world about the possibility that the ECB will pause its series of 9 consecutive interest rate hikes in September. 

Therefore, investors should wait for significant buying momentum before concluding that the recent downtrend has fully stabilized. Today's focus will be on ECB Representative Lane's speech and the final Eurozone CPI data, which could influence the EUR/USD recovery. In the absence of important economic news from the US, the dollar's fate looks set to be closely tied to US bond yields and overall market sentiment. Despite the short-term upward movement, EUR/USD seems to be looking forward to a fifth consecutive week of losses.

Technical analysis and scenarios:

Price is currently trading near the middle band at 1.08970 and the bands are converging, indicating that price volatility is decreasing. The downward direction of the bands indicates a possible continuation of the bearish trend, but as price is in the lower range and approaching the middle band, consolidation or a small pullback is possible. The Stochastic indicator value at 46.6631 is above the signal line at 40.9579. This is somewhat bullish as it indicates an upward momentum, but it is still below the overbought level (above 80), indicating that the upward momentum is not too strong yet. The MACD value of -0.001651 is above its signal line of -0.001951, which is a bullish sign. However, both values are very close to zero, so momentum is weak.

Given that technical indicators are giving mixed signals and are not strongly skewed to one side or the other, traders should be alert to any strong movements or news that could affect the EUR/USD pair.

Main scenario (SELL)

Recommended entry level: 1.08140.

Take Profit: 1.07260.

Stop Loss: 1.08450.

Alternative scenario (BUY)

Recommended entry level: 1.09000.

Take Profit: 1.09490.

Stop loss: 1.08800.