Original Author: David Becker
Source: FXEmpire – “EUR/USD, GBP/USD and EUR/GBP Forecasts – US Dollar Fighting Back on Tuesday”
Title: US Dollar Regains Momentum as Market Participants Weigh Economic Cues: EUR/USD, GBP/USD, EUR/GBP Outlook
On Tuesday, the US dollar managed to claw back losses as traders evaluated a fresh set of economic indicators, particularly labor market data and business sentiment. This renewed energy in the dollar was evident across multiple currency pairs, including the EUR/USD, GBP/USD, and EUR/GBP. In this comprehensive analysis, we examine how recent developments are affecting these major forex pairs, with technical and fundamental perspectives highlighting potential short-term trading signals.
Overview: What’s Supporting the Dollar?
The dollar’s marginal strength this week is largely attributed to the following factors:
– Encouraging data from the US labor market
– A dip in the ISM manufacturing index, but less severe than feared
– Fed officials reiterating a cautious approach to interest rate cuts
Investors responded to this relatively resilient economic picture by reassessing the likelihood of the Federal Reserve cutting interest rates in the near term. As a result, yields on US Treasuries firmed, reinforcing the dollar’s upward correction from recent lows.
EUR/USD: Weak Eurozone Data Adds to Dollar Gains
The euro continues to wrestle with economic weakness across the Eurozone, including subdued inflationary pressures and uninspiring growth data. This trend has made it difficult for the euro to maintain upward momentum against the dollar.
Key Technical Factors:
– Near-term resistance for the EUR/USD pair is seen around 1.0915
– Support is positioned around 1.0811, near the 10-day moving average
– The Relative Strength Index (RSI) is neutral, suggesting consolidation
– Fibonacci retracement levels point to further downside potential if 1.0811 is breached
The euro’s recent momentum was tempered by disappointing inflation figures. Annual inflation in key Eurozone economies continues to run below the European Central Bank (ECB)’s target, giving policymakers little reason to consider tightening.
Fundamental Outlook:
– The Eurozone’s manufacturing sector remains in contraction territory, compounding the region’s economic worries
– Preliminary Consumer Price Index (CPI) numbers fell short of expectations
– ECB policymakers are increasingly open to rate cuts in the light of persistent economic sluggishness
– Investor sentiment, as tracked by COT reports, shows increased net-short positions on the euro
In contrast, the US job market remains relatively tight, bolstering expectations that the Fed will remain on hold for longer than its European counterpart. This divergence in monetary policy stances is a primary driver behind current forex trends.
Short-Term Forecast:
The EUR/USD pair is likely to remain under pressure unless there is a surprising uptick in Eurozone data. Should the pair break decisively below 1.0800, it could slide toward the next technical support near 1.0720. Meanwhile, any signs of weakness in US data later this week could offer the euro a short reprieve, but it would likely be temporary amid broader dollar strength.
GBP/USD: Sterling Struggling Around Key Levels
The British pound has shown some resilience in recent weeks, bolstered by relatively firmer economic data compared to the Eurozone. However, the GBP/USD pair has shown signs of fatigue, as the greenback begins to recover.
Technical Overview:
– GBP/USD resistance is looming around the 1.2695 level
– Support stands near 1.2585, aligning with the recent trading band
– The RSI is flattening, indicating slowed momentum after a bullish run
– Price action has gravitated around the 50-day moving average, offering a pivot point
One of the main contributors to sterling’s recent strength has been better-than-expected consumer spending and wage inflation data, which could delay Bank of England (BoE) rate cuts. However, caution is warranted.
Fundamental Drivers
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