Fundamental analysis of EUR/USD
The EUR/USD pair continues to rise, reaching highs not seen since February 2022 at 1.12420 on Friday during the Asian session. This momentum was reinforced by the decline in the US Dollar, which has been on a continuous downward trajectory for the seventh consecutive day. Market expectations indicate that the Fed's policy tightening cycle is about to end and interest rates will remain unchanged for the rest of the year following a 25 basis point hike in July. This forecast led to a sharp drop in US Treasury yields, pushing the dollar to a 15-month low and giving EUR/USD a significant boost.
Meanwhile, the minutes of the European Central Bank's (ECB) June meeting showed its determination to continue on a course of permanently raising interest rates beyond July in order to control inflation. In June, the ECB predicted that inflation would exceed its 2% target by the end of 2025. This hawkish outlook has partially offset signs of an imminent recession and continues to strengthen.
For the EUR/USD pair, a number of events are expected. The focus will be on German wholesale inflation data due to sluggish demand, which could lead to a recession triggered by the ECB. Eurozone trade data will also play an important role. The latest data from China shows that the Eurozone trade deficit should narrow from €11.7 billion to €7.6 billion during the month due to deteriorating global terms of trade. We will be watching ECB Director Luis de Guindos' comments closely for any clues.
The US economic calendar also includes a number of important indicators. US import and export prices for June and preliminary Michigan consumer sentiment data will be released shortly. Inflation continues to attract a lot of attention, so it is worth paying attention to these indicators. The Michigan consumer confidence index is expected to rise to 65.5 from 64.4 in July. The Fed's monetary policy outlook is influenced by the recently released US CPI report, producer price index data and unemployment insurance claims. According to the CME FedWatch tool, the probability that the Fed will raise rates by 25 basis points in July is 92.4%, down slightly from Wednesday's 94.2%. In addition, the probability of a September rate hike to 5.75% fell to 11.1% from Wednesday's 13.2%.
Technical Analysis and Scenarios:
Technical indicators point to the possibility of a continuation of the uptrend given the fundamental economic context. The Stochastic oscillator is currently at 85.3937, indicating that the market is overbought, but is not yet generating a bearish signal as the Stoch line is still below the 91.5751 signal line. This suggests a continuation of the uptrend in the short term. The Bollinger Bands also indicate that price is in an upper range, with the price range widening and the indicator pointing upwards. This further indicates the possibility of a bullish trend continuation. The MACD line is above the signal line, indicating bullish momentum.
Main scenario (BUY)
Recommended entry level: 1.12500.
Take Profit: 1.13500.
Stop Loss: 1.12150.
Alternative scenario (SELL)
Recommended entry level: 1.11310.
Take Profit: 1.09970.
Stop loss: 1.12150.