Technical Analysis

EUR/USD Price Analysis – July 05, 2024

By LonghornFX Technical Analysis
Jul 5, 20245 min

Daily Price Outlook

During the European trading session, the EUR/USD currency pair continued its ascent, reaching a three-week high near the 1.0830 level. This upward movement was largely driven by weakness in the US dollar, which has been losing ground amidst growing speculation of Federal Reserve rate cuts.

Recent lackluster US economic data has fueled expectations that the Fed might slash rates as early as September, with further cuts possibly in December. As a result, the USD has declined for the fourth consecutive day, hitting a three-week low and boosting gold prices in the process.

Conversely, the Euro has seen increased demand amid political developments in France. Speculation that Marine Le Pen's far-right National Rally might not secure a majority in the legislative elections has bolstered the Euro's appeal.

This scenario unfolded as a coalition supporting President Emmanuel Macron strategically withdrew candidates, potentially preventing a far-right sweep.

Furthermore, expectations for imminent rate cuts by the European Central Bank (ECB) on July 18 have tempered, as recent data suggests that disinflation in the Eurozone may be stabilizing. This factor has also supported the EUR/USD pair's upward trajectory.

Impact of US Dollar Decline, Interest Rate Expectations, and Nonfarm Payrolls Report on Gold Prices and Federal Reserve Policy

Impact of Weakening US Dollar and Key US Economic Data on the EUR/USD Pair

On the US front, the broad-based US dollar has continued its decline as markets increasingly anticipate interest rate cuts by the Federal Reserve (Fed) in September, with potential further cuts in December.

This shift in expectations follows recent weaker US economic data, prompting the US Dollar (USD) to extend its decline for the fourth consecutive day, reaching its lowest level in over three weeks. This trend has significantly bolstered gold prices, underscoring their appeal amid the weakening dollar environment.

On the economic front, the highly anticipated Nonfarm Payrolls report is scheduled for release later today during the North American session. Analysts project that the report will indicate the US economy added 190,000 jobs in June, marking a decrease from the previous month's 272,000.

The unemployment rate is expected to hold steady at 4%, signaling stability in the labor market. However, there might be a slight slowdown in Average Hourly Earnings growth, with anticipated annual growth of 3.9%, down from May's 4.1% increase. These numbers are closely monitored as they offer critical insig

Therefore, the weakening US dollar amid anticipated Fed rate cuts has bolstered the EUR/USD pair, pushing it to a three-week high. Key US jobs data, including Nonfarm Payrolls and wage growth, will further influence its direction today.

Impact of French Political Developments and Eurozone Inflation Trends on the EUR/USD Pair

On the EUR front, the Euro is gaining support amidst expectations that Marine Le Pen's far-right National Rally may not secure an outright majority in France's legislative elections, thanks to tactical candidate withdrawals by President Macron's alliance and the left.

Meanwhile, the speculation about the European Central Bank (ECB) cutting rates further on July 18 has waned due to signs that inflation in the Eurozone, excluding volatile items, held steady with a 2.9% year-on-year increase in June, suggesting a pause in disinflationary trends.

These developments are likely bolstering the Euro against the US Dollar, as reduced political uncertainty in France and stabilizing inflation expectations lessen the urgency for ECB rate cuts, supporting the EUR/USD pair.

EUR/USD Price Chart - Source: Tradingview
EUR/USD Price Chart - Source: Tradingview

EUR/USD - Technical Analysis

The EUR/USD pair is trading at $1.08282, marking a modest increase of 0.08% in early trading. On the 4-hour chart, several key technical levels could shape the pair's short-term direction. The pivot point at $1.0816 serves as a crucial marker for potential bullish or bearish movements.

Immediate resistance is seen at $1.0839, followed by $1.0854 and $1.0872. A break above these levels could signal further upside momentum, potentially pushing the pair towards higher resistance zones. Conversely, immediate support is located at $1.0795, with further supports at $1.0779 and $1.0763, which could provide buying opportunities if the price pulls back.

The Relative Strength Index (RSI) is currently at 73, indicating that the EUR/USD is approaching overbought conditions. Typically, an RSI at this level suggests that the asset may be overvalued, which could precede a price correction. Therefore, traders should be cautious and watch for any signs of a bearish reversal.

The 50-day Exponential Moving Average (EMA) is positioned at $1.0769, reinforcing the bullish trend as long as the price remains above this average. The EMA acts as dynamic support, and maintaining a price above this level supports the ongoing bullish sentiment.

Given the current market setup, an effective strategy would be to enter a buy position above $1.08166. Setting a take-profit target at $1.08443 aligns with immediate resistance levels, ensuring a favorable risk-reward ratio while capturing potential gains. A stop-loss at $1.08013, just below the pivot point, helps limit downside risk from unexpected market movements.

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