EUR/USD Daily Forecast – Euro Continues to Hold in a Range

The rally in EUR/USD has been capped by its 200-week moving average and a range appears to be developing as the pair works off overbought conditions.

The exchange rate found sellers near 1.1350 and reversed lower from a recovery after an upbeat US retail sales report triggered a dollar rally.

Sales in the US rose a staggering 17.7% last month versus the analyst estimate of 7.9%, showing signs of a strong recovery. The report stands to lead to an upward revision in GDP growth estimates for the US as consumer spending accounts for nearly three-quarters of total GDP.

The annual rate of inflation in the euro area was reported to rise 0.1% in the year to May which was in line with expectations. The largest contributor to upward price pressure came from food, alcohol & tobacco. Euro-area inflation has been steadily moving lower since it topped just above 2% in 2018.

EUR/USD is diverging from its correlation with risk assets such as stocks this week. Over the last few weeks, a momentum-driven rally in the global equities had weighed on the dollar. However, gains in equities over the last few days have done little to hamper the recovery in the greenback.

Technical Analysis

EURUSD 4-Hour Chart

EUR/USD has been holding within a range between 1.1235 and 1.1400 for about two weeks. The pair was last seen testing the lower bound of this range.

The overhead resistance from the 200-week moving average has proven to be a major obstacle for bulls and the price action that has followed a test of the indicator shows a decline in upward momentum.

Nevertheless, the upward momentum from late May suggests that buyers may continue to support the currency pair on dips.

With EUR/USD testing the lower bound of its range, traders will be keeping a close eye on the 1.1235 level in the session ahead. A downside break could see the pair extending the correction towards support at 1.1139.

While above 1.1235, the range remains intact. Resistance for the session ahead, in the event buyers defend support, is seen at 1.1349.

Bottom Line

  • EUR/USD has fallen into a range with notable overhead resistance dampening the upward momentum.
  • A strong US retail sales support has underpinned the US dollar causing a divergence in correlation with the equity markets.

For a look at all of today’s economic events, check out our economic calendar.