EUR/USD Price Forecast: Constructive Outlook Remains Intact Above 1.1150
Overview of Current Market Conditions
As of Monday’s early European session, the EUR/USD pair is showing mild gains, trading around 1.1055. This comes after a three-day losing streak, marking a moment of stabilization for the currency pair. The recent price action is largely influenced by the dovish stance of the US Federal Reserve (Fed), which has put downward pressure on the US Dollar (Greenback) and provided some support for the Euro.
Federal Reserve’s Dovish Stance Supports EUR/USD
The financial markets are currently pricing in a nearly 70% probability of a 25 basis points (bps) rate cut by the Fed in September. In contrast, the chance of a more aggressive 50 bps reduction is estimated at 30%, according to the CME FedWatch tool. The focus now shifts to the upcoming US employment data, scheduled for release on Friday, which will provide further insights into the Fed’s potential monetary policy moves in September.
Technical Analysis: Bullish Outlook Maintained
From a technical perspective, the EUR/USD pair maintains a bullish outlook as it holds above the key 100-day Exponential Moving Average (EMA) on the daily chart. This level has proven to be a strong support, preventing the pair from extending its recent losses.
Relative Strength Index (RSI) Signals Neutral Momentum
However, it’s worth noting that the 14-day Relative Strength Index (RSI) is hovering around the midline, indicating neutral momentum. This suggests that while the overall trend remains positive, the pair might experience some consolidation before any significant upward movement.
EUR/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
Key Levels to Watch
Upside Potential: Resistance Levels
The immediate resistance for EUR/USD is at 1.1185, which corresponds to the high of August 28. A decisive break above this level could open the door for further gains. The next hurdle is seen at the upper boundary of the Bollinger Band, located around 1.1230. If the pair manages to break through this level, it could rally towards 1.1275, the high recorded on July 18.
Downside Risks: Support Levels
On the downside, the crucial support level is at the psychological mark of 1.1000. A breach of this level could trigger a deeper correction, with the next support at 1.0950, the low observed on August 15. If selling pressure intensifies, traders should watch for additional support near the 100-day EMA at 1.0893. Beyond this, the lower limit of the Bollinger Band at 1.0863 serves as the final downside filter.
Market Sentiment and Future Outlook
Impact of US Employment Data on EUR/USD
The upcoming US employment data will be critical in shaping the near-term outlook for EUR/USD. Strong employment figures could bolster the case for a less aggressive rate cut by the Fed, potentially putting pressure on the Euro. Conversely, weaker-than-expected data could reinforce expectations of a 25 bps rate cut, or even a 50 bps reduction, thereby supporting the EUR/USD pair.
Long-Term Perspective
In the longer term, the EUR/USD pair’s ability to maintain its position above the 100-day EMA will be crucial in sustaining the bullish outlook. A sustained break above the resistance levels mentioned earlier could signal the start of a new upward trend, potentially targeting the 1.1300 level and beyond. However, if the pair fails to hold above the 1.1000 support, it may face increased selling pressure, leading to a deeper correction.
Constructive Outlook with Caution
In summary, the EUR/USD pair is currently trading with a constructive outlook, supported by the Fed’s dovish stance and its position above key technical levels. While the overall trend remains positive, the neutral momentum indicated by the RSI suggests that further consolidation is possible in the near term. Traders should closely monitor the key resistance and support levels, as well as the upcoming US employment data, to gauge the pair’s next move.
