**EUR/USD Forecast: Euro Correction Could Remain Shallow Amid Limited Downside Risks**
*Adapted and expanded from the original analysis by Eren Sengezer, FXStreet*
The EUR/USD pair started the week modestly weaker but remained within a relatively narrow range, reflecting the subdued trading environment. Investors are treading cautiously amid mixed signals from economic data, shifts in central bank expectations, and global risk sentiment. The ongoing debate around monetary policy normalization by the European Central Bank (ECB) and the Federal Reserve (Fed) remains central to EUR/USD’s trajectory. However, market dynamics suggest any correction in the euro might remain shallow, with strong technical and fundamental support limiting significant downside risks.
In this detailed analysis, we expand on Eren Sengezer’s original forecast by taking a closer look at:
– Recent EUR/USD performance and technical outlook
– Macroeconomic fundamentals in Europe and the United States
– Market sentiment and position flows
– Upcoming risk events and data releases
– Potential scenarios for the euro in the near term
Let’s explore each area in depth.
**1. Recent EUR/USD Price Action and Technical Signals**
The EUR/USD pair opened the week with a bearish bias but struggled to push below key technical support zones. Instead of establishing a strong downside move, the euro remained range-bound, indicating that bearish momentum may be starting to stall.
Key technical highlights include:
– The pair encountered strong support in the 1.0880-1.0900 area. Buyers consistently defended this zone during minor dips.
– Resistance levels appear near 1.0960 and 1.1000. Bulls are likely to face challenges in retaking these areas unless supported by a strong catalyst.
– The Relative Strength Index (RSI) on the four-hour chart remains close to neutral, suggesting no overbought or oversold conditions.
– Price is still hovering around the 20-period Simple Moving Average (SMA), further confirming that the market lacks strong directional momentum at present.
In summary, technical setups suggest sideways movement continues to dominate, with both bulls and bears searching for a catalyst.
**2. European Economic Environment: Fragile but Stabilizing**
The euro’s fate hinges not just on the ECB’s monetary policy path but also on macroeconomic recovery trends within the eurozone. Recent data has reflected a mixed picture:
– Headline inflation has declined steadily, courtesy of base effects and energy price moderation. The latest figures showed eurozone Harmonized Index of Consumer Prices (HICP) inflation slowing toward 2.5 percent, still above the ECB’s 2 percent target but trending in the desired direction.
– Core inflation remains sticky, indicating that services inflation and labor costs are keeping underlying price pressures elevated.
– Industrial production data across Germany, France, and Italy has shown early signs of stabilizing after months of contraction, although output remains below pre-pandemic levels.
ECB policymakers have taken note of this mixed economic momentum. While some council members suggest the time for interest rate cuts is approaching, others urge patience, citing “still-strong” wage dynamics and elevated service costs.
Overall, the eurozone economy appears to be bottoming out. Any positive surprise in upcoming macro indicators may therefore serve to stiffen support for EUR/USD.
**3. Federal Reserve Pivot Uncertainty: How It Shapes the USD**
Across the Atlantic, the U.S. dollar continues to be driven by Federal Reserve policy expectations and macroeconomic data surprises. Recently, the dollar lost some ground after softer economic indicators suggested that the Fed may initiate rate cuts sooner than previously expected.
Important USD-related developments include:
– The U.S. Consumer Price Index (CPI) came in lower than anticipated, showing headline inflation easing to 3.1 percent year-on-year. Core prices also moderated, fueling expectations of an earlier pivot by the Fed.
– Labor market strength appears to be diminishing modestly. Nonfarm payrolls (NFP) showed slower job additions, and an uptick in the unemployment
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