EUR/USD Price Analysis – Aug 02, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair maintained its upward trend and edged higher around 1.0830, hitting an intra-day high of 1.0838.
This upward movement can be attributed to the hotter-than-expected Eurozone preliminary Harmonized Index of Consumer Prices (HICP) in July, which has increased inflation concerns and led to reduced investor confidence in the euro.
Meanwhile, the US dollar shows a subdued performance as a string of weak US economic data points to a slowdown in the economy. The major currency pair is expected to remain on the sidelines as investors await the United States (US) Nonfarm Payrolls (NFP) data for July, which will be published at 12:30 GMT.
EUR/USD May Rise as US Dollar Weakens on Dovish Fed Guidance and Economic Data
On the US front, the broad-based US dollar failed to stop its downward trend and edged lower, even though the Fed leaned towards policy normalization in September. On Wednesday, the Fed kept interest rates unchanged at 5.25%-5.50% but gave dovish guidance.
Fed Chair Jerome Powell suggested that a rate cut could be possible in September if inflation aligns with expectations and the economy remains strong. Ahead of the US Nonfarm Payrolls (NFP) report, the dollar shows weakness due to recent poor economic data, and the US Dollar Index (DXY) fell to around 104.20.
On the data front, economists estimate that 175,000 new jobs were added in July, down from 206,000 previously, with the Unemployment Rate expected to hold steady at 4.1%. Investors will watch the Average Hourly Earnings data, which is forecasted to show a slowdown in annual wage growth to 3.7% from 3.9%, with a monthly increase of 0.3%.
Additionally, the US ISM Manufacturing PMI report for July revealed a faster-than-expected contraction to 46.8, compared to the estimated 48.8. Initial Jobless Claims for the week ending July 26 rose to 249,000, higher than the expected 236,000 and the previous 235,000.
Therefore, the EUR/USD pair could benefit from the US dollar's weakness and dovish Fed outlook. With weaker US economic data and potential rate cuts, the euro gains an advantage, driving the EUR/USD pair higher as investors react to these conditions.
Euro Faces Pressure Amidst Strong Eurozone Inflation and GDP Growth
On the EUR front, the euro struggles to gain traction despite higher-than-expected Eurozone inflation and GDP growth. The Eurozone's preliminary HICP for July rose to 2.6%, surpassing expectations of 2.4%, and core HICP increased to 2.9% from an expected 2.8%. Additionally, the GDP growth for Q2 was 0.3%, above the anticipated 0.2%.
This combination of persistent inflation and steady growth dampens expectations for European Central Bank (ECB) rate cuts. While some ECB policymakers are open to the possibility of rate cuts, others remain cautious about committing to this path.
Therefore, the EUR/USD pair face pressure as higher inflation and stronger GDP growth in the Eurozone reduce expectations for ECB rate cuts. This limit the euro's upward momentum against the dollar.
EUR/USD - Technical Analysis
The EUR/USD pair is trading at $1.08040, marking a slight increase of 0.05% as markets digest recent economic data and central bank signals. The 4-hour chart indicates that the pair is currently trading just below the pivot point of $1.0819, suggesting a cautious market sentiment.
Immediate resistance is at $1.0849, with further barriers at $1.0870 and $1.0903. For the euro to gain upward momentum, it needs to break decisively above these levels.
On the downside, support is found at $1.0777, with additional support at $1.0741 and $1.0710. A breach of these support levels could lead to a more pronounced decline, especially if US economic data continues to show resilience.
The Relative Strength Index (RSI) is at 45, indicating that the pair is neither overbought nor oversold, providing room for potential moves in either direction.
The 50-day Exponential Moving Average (EMA) is positioned at $1.0834, which the pair is currently trading below, suggesting a bearish outlook in the short term.
Traders are advised to consider selling below $1.08182, with a target take-profit level at $1.07584 and a stop-loss set at $1.08481. This strategy allows traders to capitalize on potential downward moves while managing risk effectively.
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