For the past week, the euro has been recovering against the dollar, after having experienced a downward trend since early June.
The US currency strengthened after the Federal Reserve made hawkish comments on the rate hike twice before the end of 2023. The central bank also hinted at cutting monthly bond purchases by 120. billion dollars, as a result of the continued economic rebound.
Meanwhile, the euro has recovered some losses, and it is now approaching a key area around 1.20, which previously acted as a major support / resistance.
What happened this week?
The dollar index ended the week lower, as US consumer spending data showed stagnation in May. The Core PCE price index plunged from 0.7% in April to 0.5% in May.
A University of Michigan survey released Friday also showed that the Consumer Sentiment index rose 3.1% in May to 85.5 in June. Analysts had expected the sentiment index to rise slightly to 86.5.
EUR / USD – A technical perspective
Long term trend: Bearish
From the daily chart above, it is evident that the EUR / USD pair has been on a downtrend since early June.
The price has been corrected upward and is now approaching key resistance around 1.198-1.20. The pair is now testing this level and is already facing a lot of upside resistance.
Currently we can see bearish pin bars and an interior bar pattern just below the resistance area. We expect EUR / USD to resume the downtrend from the current pin / inner bar combination.
EUR / USD is expected to trade lower from the current inner pin / bar setting, around the resistance area of 1.198-1.20. Prices have already tested this area and have traded lower, making it an important area of interest when trading the pair.
Sell trades taken at this level should target the area around 1.1849, and lower at 1.1724.
What to look for
Despite the clear downward trend in EUR / USD pair, we could see more market indecision around the resistance zone, as investors wait for nonfarm payroll data next week.
Strong US data that pushes the Fed’s talk of cutting bonds and rate hikes forward could strengthen the dollar. NFP data for July will offer further clues as to the possibility of a move towards 1.1849 or below.
As for Europe, key data like the CPI, the manufacturing PMI and a statement by ECB President Christine Lagarde on Friday could change market sentiment. However, the US employment data could eclipse any other economic news affecting the currency pair next week.
Already, investors are bracing for potentially strong employment data next week, after jobless claims by the Department of Labor the previous week showed a drop of 7,000. As a trader, I will be monitoring the employment data, to assess whether the dollar will maintain its strength and open further declines for the pair.
For now, I recommend a sell trade, based on current technical analysis, emphasizing that it is crucial to consider upcoming fundamental developments for trade confirmations. Good luck!