EUR/USD Forecast: US Dollar boosted by renewed risk aversion

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EUR/USD Current Price: 1.0697

  • The EU  core Harmonized Index of Consumer Prices was downwardly revised to 5.2% YoY.
  • The focus remains on the upcoming United States Federal Reserve monetary policy decision.
  • EUR/USD battles to extend gains beyond 1.0700 as investors assess inflation-related risks.

The EUR/USD pair extended its weekly gains on Tuesday, surpassing the 1.0700 level mid-European session, as a better market mood subdues US Dollar demand. Stock markets trade with a better tone after seesawing at the beginning of the week, helped by firmer energy shares following higher crude oil prices.

Data-wise, the calendar remains scarce, although the Euro Zone revised its August inflation figures. The Harmonized Index of Consumer Prices (HICP) was confirmed at 5.3% YoY, but the core annual reading was downwardly revised to 5.2% from a preliminary estimate of 5.3%. The monthly core figure was reported at 0.5%, slightly below the 0.6% previously reported. The encouraging numbers boosted speculation the European Central Bank (ECB) is done with rate hikes.

Meanwhile, the United States (US) Federal Reserve’s (Fed) decision looms. The American central bank is largely anticipated to maintain rates on hold and keep tracking the progress of previous decisions on inflation. Market participants will be looking for clues about future decisions and assessing odds for a final rate hike in November, currently at around 29%, according to the CME FedWatch Tool.

The US published August Building Permits and Housing Starts ahead of Wall Street’s opening, up 6.9% and down 11.3%, respectively. At the same time, Canada released its August Consumer Price Index (CPI), which resulted higher than anticipated. The news is giving the US Dollar an unexpected boost as markets turn risk-averse.

EUR/USD short-term technical outlook

From a technical point of view, EUR/USD ongoing advance seems corrective. The pair is up for a third consecutive day, yet still less than 100 pips above the multi-month low posted last week at 1.0631. The upside seems limited in the daily chart, as a firmly bearish 20 Simple Moving Average (SMA) extends its slide below the longer ones, providing dynamic resistance at around 1.0765. At the same time, the Momentum indicator keeps heading south within negative levels, while the Relative Strength Index (RSI) indicator advances with moderate strength, but remains below its midline.

For the near term, the 4-hour chart hints at modest gains ahead. EUR/USD holds above a bearish 20 SMA, providing dynamic support around the intraday low. The longer moving averages maintain their downward slopes far above the current levels, while technical indicators head north above their midlines with uneven strength. The pair could test the 1.0760/70 area once above 1.0720, the immediate resistance level.

Support levels: 1.0680 1.0630 1.0590

Resistance levels: 1.0720 1.0765 1.0800

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