The Euro (EUR) loses some upside traction against the US Dollar (USD), and motivates EUR/USD to come all the way down from earlier tops near 1.1280, the highest level since February 2022. The so far daily downtick comes on the back of the rebound in the Greenback despite declining US and German yields across the curve. On the broader picture, the possibility that the Federal Reserve (Fed) may be nearing the end of its tightening cycle continues to weigh on the US Dollar. Furthermore, this view has gained momentum recently with signs of cooling US consumer prices and downward trending producer prices.
The market has largely priced in 25-basis-point rate hikes from both the European Central Bank (ECB) and the Federal Reserve at their July events. However, there is still debate about their future moves as central banks work to normalize policy amid concerns of an economic slowdown in both Europe and the US. Around the ECB, board member Klaas Knot suggested earlier in the session that core inflation has plateaued, but he did not rule out hikes beyond July. Data-wise in the US economy, Retail Sales expanded below the consensus 0.2% MoM in June, while Industrial Production contracted 0.5% MoM and 0.4% YoY also in the same month. Additionally, Business Inventories expanded 0.2% MoM in May and the NAHB Housing Market Index improved a tad to 56 in July.
Despite the ongoing knee-jerk, price action in EUR/USD suggests that further gains might be in store in the short-term horizon. The pair printed a new 2023 high at 1.1275 on July 18. Once this level is cleared, there are no resistance levels of significance until the 2022 peak of 1.1495 recorded on February 10. On the downside, the 1.1000 region emerges as a psychological support seconded by provisional support at the 55-day and 100-day Simple Moving Averages (SMAs) at 1.0890 and 1.0865, respectively, ahead of the July 6 low of 1.0833. A breakdown of this region should meet the next contention area at the key 200-day SMA at 1.0666 prior to the May 31 low of 1.0635. South from here emerges the March 15 low of 1.0516 before 2023 low of 1.0481 on January 6. Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 200-day SMA. However, the current pair’s overbought condition, as per the daily Relative Strength Index (RSI) above 75, carries the potential to trigger a technical correction in the short-term horizon.