EUR/USD Forecast: Euro remains vulnerable after mixed eurozone inflation data

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  • EUR/USD has been struggling to stage a convincing recovery.
  • Annual inflation in the euro area climbed to 8.6% in June from 8.1%.
  • Sellers are likely to continue to dominate the pair’s action as long as 1.0470 resistance holds.

EUR/USD has lost its recovery momentum and started to edge lower after having snapped a two-day losing streak on Thursday. Following the mixed inflation data from the eurozone, the pair stays on the back foot and the technical picture shows that buyers remain on the sidelines.

The Eurostat reported on Friday that annual inflation in the euro area, as measured by the Harmonised Index of Consumer Prices (HICP), jumped to 8.6% in June from 8.1% in May. This print came in higher than the market expectation of 8.3%. The Core HICP, however, which excludes volatile food and energy prices, edged lower to 3.7% from 3.8% in the same period, not allowing the shared currency to gather strength.

Investors don’t seem to be expecting the inflation data to have a major impact on the European Central Bank’s (ECB) upcoming rate decision. According to Reuters, money markets are pricing only a 20% probability of a 50 basis points ECB rate hike in July.

In the second half of the day, the ISM Manufacturing PMI will be featured in the US economic docket. Market participants will pay close attention to the Prices Paid component of the survey. Previewing this report, “inflation, not employment, is what matters in the ISM Manufacturing PMI,” said FXStreet Senior Analyst Yohay Elam. “Any small beat would extend the uptrend in the dollar, especially as the weekend draws near and end-of-month flows have been cleared.”

In the meantime, US stock index futures are down between 0.7% and 0.8% ahead of Wall Street’s opening bell. In case safe-haven flows continue to drive the market action in the American session, EUR/USD is likely to stay under bearish pressure.

EUR/USD Technical Analysis

1.0470 (Fibonacci 23.6% retracement of the latest downtrend) aligns as initial resistance. As long as this level stays intact, buyers are likely to remain uninterested.

On the downside, interim support seems to have formed at 1.0440 ahead of 1.0400 (psychological level) and 1.0380 (static level). In the meantime, the Relative Strength Index (RSI) indicator on the four-hour chart stays below, confirming the view that sellers look to retain control.

Above 1.0470, 1.0500 (psychological level, 100-period SMA) and 1.0520 (Fibonacci 38.2% retracement) could be seen as next technical hurdles.