EUR/USD Veers Off Bullish Path after Rejection at 1.1000. Now What?

EUR/USD Forecast:

• EUR/USD It fails to stay above the psychological level of 1.1000 and declines heading into the weekend, challenging trend line support
• Disappointing economic data in the Eurozone is urging traders to reduce their exposure to the shared currency
• This article looks at specialization euro/American dollarTechnical levels to watch next week

Most read: JPY Forecast – USD/JPY Breakout But USD/JPY lacks bullish spark

EUR/USD rallied and briefly regained the psychological 1.1000 level earlier in the week, but failed to sustain its advance, ending the five-day period on a soft note near 1.0890 after a sharp sell-off on Friday after weak PMI data in Europe .

While the EUR has been in a strong bullish trend since the beginning of the month, especially after the European Central Bank raised its inflation forecasts and signaled a further tightening of the outlook horizon, the bullish momentum is showing some real signs of exhaustion, just as the US dollar begins to revitalize again.

Friday’s set of disappointing EU statistics may be responsible for the shift in sentiment. In context, factory activity deepened its decline in June, dropping to 43.6 from 44.8 in May, marking a 37-month low, in a sign of a deepening industrial recession.

A snapshot of European Union economic data

source: DailyFX Economic Calendar

The HCOB Flash Purchasing Managers’ Index for the Eurozone also revealed that the services sector eased significantly, falling from 55.1 to 52.4, well below the average estimate of 54.5. For interpretation, any number above 50 indicates expansion of output, while values ​​below this threshold indicate contraction.

Although general conclusions should not be drawn from a single report, the deteriorating growth environment is worrisome and a potential source of weakness for the single currency. If demand conditions do not stabilize and improve in the region soon, the ECB will find it difficult to justify further increases, as a more restrictive stance could trigger a deeper contraction.

In this context, the incoming economic reports should be closely examined, as they may shed light on the future outlook for monetary policy. However, the main releases worth paying attention to in the coming days will be the German Ifo Business Climate Survey on Monday, the German GfK Consumer Confidence on Tuesday, and the Eurozone CPI results on Friday.

Technical analysis of the EUR/USD pair

After hitting multi-week highs on Thursday, EUR/USD has started to slide back, with the pair challenging its 50-day simple moving average and an uptrend line near 1.0865 heading into the weekend. While the near-term technical indicators remain positive, the market bias could become less positive if the exchange rate breaks out of the technical support area described above.

In terms of possible scenarios, if EUR/USD drops below 1.0865 on a sustained basis, sellers may gain confidence to start an attack on 1.0780/1.0755. Prices may be able to establish a base around those levels before bouncing back, but in the event of a breakdown, we could look forward to a possible retest of the May lows.

On the other hand, if the buyers return and spark an upward shift, the initial resistance appears at the psychological level of 1.1000. There could be more upside in store on a push above this barrier, with the next target around the 1.1100 region, followed by 1.1190.

Technical chart of the EUR/USD pair

EUR/USD technical chart created with TradingView