EUR/USD Price Analysis – July 26, 2024

Daily Price Outlook

During the European trading session, the EUR/USD currency pair gained positive traction, turning bullish around the 1.0857 level and reaching an intra-day high of 1.0861.

This upward movement is primarily due to the weakening US dollar, which has been under pressure amid expectations for Federal Reserve (Fed) rate cuts later this year. Softer-than-expected US inflation figures have intensified these expectations, potentially leading to lower interest rates and further weakening the dollar.

However, the EUR/USD pair's gains may be limited by ongoing economic challenges in the Eurozone. Germany's PMI data recently showed contraction, and the European Central Bank (ECB) is anticipated to cut rates further, which could also put downward pressure on the Euro.

Additionally, the Euro faces headwinds from a significant tax relief package, impacting its overall value.

Weak German Economy and ECB Rate Cut Expectations Pressure EUR/USD Pair

On the EUR front, the Eurozone is facing a tough time as Germany, its largest economy, struggles with economic contraction. In July, the German Hamburg Commercial Bank (HCOB) Composite Purchasing Managers Index (PMI) fell to 48.7 from 50.4, signaling a decline in private sector activity.

Dr. Cyrus de la Rubia, HCOB’s Chief Economist, warned that Germany’s economy is shrinking, particularly due to a sharp drop in manufacturing output. This weak performance is affecting the Euro, compounded by expectations of two more rate cuts by the European Central Bank (ECB).

ECB officials are considering these cuts to boost the economy, especially as inflation is projected to hit 2% by 2025.

Meanwhile, Germany’s 30 billion euros tax relief plan shows the government’s concern over low demand. The upcoming Eurozone Harmonized Index of Consumer Prices (HICP) data will be crucial in determining the timing of future ECB rate cuts.

Therefore, the weak German economy and anticipated ECB rate cuts are likely to weaken the Euro. As Germany struggles with contraction and inflation expectations shift, the EUR/USD pair could see downward pressure, with the Euro losing ground against the US dollar.

Impact of US Inflation Data and Fed Rate Cut Speculation on EUR/USD Pair

On the US front, the broad-based US dollar has been losing its momentum as investors await the core Personal Consumption Expenditures (PCE) price index data for June, set for release at 12:30 GMT.

Economists forecast that inflation will ease slightly to 2.5% year-over-year in June from 2.6% previously, with a steady 0.1% monthly increase. This data will play a crucial role in shaping market expectations for Federal Reserve (Fed) rate cuts this year.

Currently, there is strong speculation that the Fed will cut rates in September. If inflation figures are softer than expected, it would likely support the case for these cuts, while stubbornly high inflation could weaken this expectation.

The US dollar has shown subdued performance as traders remain cautious, knowing that the Fed is expected to keep its key rates steady at 5.25%-5.50% during its July 31 meeting.

Therefore, the subdued US dollar and anticipated Fed rate cuts could benefit the EUR/USD pair. Softer inflation data might reinforce expectations for September rate cuts, potentially strengthening the Euro against the Dollar.

EUR/USD - Technical Analysis

The EUR/USD currency pair is currently trading at $1.08577, reflecting a modest increase of 0.12%. Analyzing the 4-hour chart, several key levels and technical indicators emerge, providing insight into potential price movements.

The pivot point is identified at $1.0836, serving as a crucial level that could determine the pair's next direction. Immediate resistance is observed at $1.0877, with subsequent resistance levels at $1.0912 and $1.0949. These levels represent potential barriers for any upward movement in the short term.

On the downside, immediate support is found at $1.0806, followed by $1.0777 and $1.0753. These support levels are critical in preventing further declines and could act as bounce points if the pair faces selling pressure.

The Relative Strength Index (RSI) stands at 48, suggesting a neutral market sentiment. An RSI near 50 indicates neither overbought nor oversold conditions, implying potential for movement in either direction based on market catalysts.

The 50-day Exponential Moving Average (EMA) is positioned at $1.0883, slightly above the current price. The proximity of the price to the 50 EMA suggests potential resistance if the pair attempts to climb higher. The 50 EMA is a commonly watched indicator that traders use to gauge medium-term trend direction.

In conclusion, the technical outlook for EUR/USD remains cautiously bullish above the pivot point of $1.0836. Traders are advised to consider buying above $1.08354, with a take profit target of $1.08869 and a stop loss at $1.08120.

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