Fundamental analysis of EUR/USD

The EUR/USD pair fell to around 1.12350 in the European session on Wednesday, extending the decline from highs not seen since February 2022 the day before. It was supported by a rebound in the US dollar and negative market concerns from the European Central Bank.

U.S. retail stocks in June suggested that the Fed may keep interest rates at higher levels for longer or even raise them. This sentiment pushed the US Dollar Index (DXY) from a 15-month low of 99.55 to over 100.05. Mixed sentiment around China and stock market optimism could lead EUR/USD to fall in a weakened market. Recent reports from China's Ministry of Industry and Information Technology on recession and declining earnings, including disappointing second quarter GDP data, have heightened fears of slowing economic growth. These factors are weighing heavily on oil prices given China's role as a major oil consumer.

Meanwhile, an interest rate hike in the US is boosting earnings by reducing bankruptcy fears, boosting sentiment and challenging US bulls. This has brought S&P 500 futures close to their highest level since March 2022, while 10-year and 2-year U.S. Treasury yields have continued to weaken. Depending on this news and expectations of a weak day, EUR/USD could continue its decline. June's existing home sales and housing starts data will rise as the numbers increase in line with builders' expectations and buyers' needs. Despite the disappointment in US sales and manufacturing, good data may support the soft landing theory as housing is an important indicator of the economy.

Eurozone inflation data for the end of June and the US housing market index may be of interest to Euro traders. Pressure on ECB members to tighten monetary policy could increase if strong economic data for July further boosts inflation expectations. Preliminary data showed euro zone inflation fell to 5.5% from 6.1% in June. ECB President Christine Lagarde and the Governing Council expressed interest in keeping the monetary rate unchanged, but further decisions will depend on data to be released later in the summer. 

Technical analysis and scenarios:

EUR/USD is currently trading at 1.12360, showing an uptrend according to the Alligator indicator. This means that the market is in a buying phase as the Alligator's jaw is wide open and the jaw (blue line) is under the lips and teeth (green and red lines). Despite the uptrend, both the Awesome Oscillator (AO) and Accelerator Oscillator (AC) are in the gray area, indicating the presence of divergence. This indicates a potentially unreliable signal to open a position.

Main scenario (BUY)

Recommended entry level: 1.13000.

Take Profit: 1.13500.

Stop Loss: 1.12750.

Alternative scenario (SELL)

Recommended entry level: 1.11360.

Take Profit: 1.10230.

Stop loss: 1.11750.