- The market focus shifted from inflation to US employment data.
- US PCE figures revealed an expected 0.2% increase.
- Eurozone services inflation remained high, lowering bets for ECB rate cuts.
The EUR/USD forecast points south. However, the pair recovered slightly as the dollar fell ahead of the all-important US employment report. At the same time, US markets remained closed for a holiday, keeping trading thin.
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The dollar eased from its two-week peak on Monday as the focus shifted from inflation to US employment data. Last week, the greenback ended Friday up after PCE figures revealed an expected 0.2% increase. After the report, markets lowered the likelihood of a 50-bps rate cut, boosting the dollar. However, the uncertainty about the size of cuts will continue as more data comes in.
Investors are particularly anticipating the nonfarm payrolls report, which can significantly alter rate cut expectations. Notably, economists expect increased job growth of 165,000 in July. Meanwhile, the unemployment rate might fall from 4.3% to 4.2%. A positive report will likely boost the dollar by solidifying bets for a smaller rate cut. On the other hand, another downbeat month could raise the chances of a 50-bps rate cut, weighing on the dollar.
Meanwhile, the euro strengthened on Monday as investors digested Eurozone inflation data. Initially, the currency fell after German inflation came in softer-than-expected, raising expectations for ECB rate cuts. However, Eurozone inflation later on Friday showed a mixed picture. Headline inflation eased from 2.6% to 2.2%, as expected. However, services inflation remained high, lowering bets for ECB rate cuts.
EUR/USD key events today
The pair might start the week slowly as there are no key reports. At the same time, trading will remain thin due to a US holiday.
EUR/USD technical forecast: Price recovers within downtrend
On the technical side, the EUR/USD price is recovering after making a new low below the 1.1100 support level. Nevertheless, bears remain in charge since the price trades below the 30-SMA, with the RSI under 50.
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Notably, the trend reversed when the price reached the 1.1201 resistance level. EUR/USD broke below the 30-SMA after a bearish divergence. Afterwards, the price started making lower highs and lows, confirming a new downtrend. Therefore, the price might retest 1.1100 before targeting the next support at 1.1001.
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