EUR/USD Price Analysis – July 08, 2024
Daily Price Outlook
During the European trading session, the EUR/USD pair extended its upward movement, reaching an intraday peak near 1.0843.
This rise was fueled by a weakening US dollar, which has been under pressure amid mounting speculation about potential rate cuts by the Federal Reserve.
Recent poor US economic indicators have heightened expectations that the Fed could start rate reductions as soon as September, with further cuts possibly following in December.
However, the upward momentum of the EUR/USD pair may face resistance due to uncertainties surrounding the outcome of France's election. Jean-Luc Mélenchon's unexpectedly strong showing for his left-wing party could potentially impact Eurozone policies and economic stability, tempering the euro's gains.
Impact of Weaker US Economic Data and Expected Fed Rate Cuts on 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. On the data front, the US Nonfarm Payrolls (NFP) report for June revealed a slowdown in hiring, with revised figures showing 110,000 fewer jobs added in April and May than initially reported.
Additionally, the Unemployment Rate unexpectedly rose to 4.1%, up from the anticipated and previous 4.0%.
Therefore, the weaker US economic data and expected Fed rate cuts have weakened the US dollar, impacting the EUR/USD pair positively as the euro strengthens against the dollar amid decreased rate hike expectations.
Impact of French Political Uncertainty and ECB Policy on EUR/USD Pair
Despite uncertainties in French politics, the euro has been performing well. Exit polls indicate that Jean-Luc Mélenchon's left-wing New Popular Front might create a coalition government, potentially ahead of Macron's centrist group and Le Pen's National Rally.
Since no single party has a clear majority, there are ongoing discussions about which individuals will fill government positions and who will become the next Prime Minister. Mélenchon has even suggested that Macron should resign to allow the left-wing coalition to take control of economic policies.
Meanwhile, concerns about high inflation have reduced hopes that the European Central Bank will lower interest rates soon. In June, inflation in the Eurozone stayed high at 2.9% compared to last year, mainly due to higher costs for services.
ECB President Lagarde emphasized the need to stay cautious, especially with ongoing pressures that could lower inflation, at the Sintra Forum.
Therefore, the uncertainty in French politics and concerns over inflation have kept the EUR/USD pair stable, with potential coalition outcomes influencing market sentiment while inflation worries affect ECB rate cut expectations.
EUR/USD - Technical Analysis
The EUR/USD pair is currently trading at $1.08365, reflecting a modest increase of 0.15%. The 4-hour chart reveals critical technical levels and indicators that traders should monitor. The pivot point is set at $1.0816, marking a crucial threshold for potential bullish or bearish movements.
Immediate resistance levels are identified at $1.0839, $1.0854, and $1.0872. A break above these levels could signal further upward momentum for the pair. Conversely, support levels are found at $1.0795, $1.0779, and $1.0763. A drop below these support points could trigger a significant selling trend.
The Relative Strength Index (RSI) is currently at 63, suggesting that the EUR/USD pair is in bullish territory but not yet overbought. Typically, an RSI level below 70 indicates room for further gains before potential overvaluation concerns arise.
The 50-day Exponential Moving Average (EMA) stands at $1.0790, 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 $1.08294. Setting a take-profit target at $1.08540 aligns with immediate resistance levels, providing a favorable risk-reward ratio while capturing potential gains. A stop-loss at $1.08138, just below the pivot point, helps limit downside risk from unexpected market movements.
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