EUR/USD Daily Forecast – Fiber Catches a Bid Following Inflation Beat

Final CPI Ticked Up in the Year to June

Eurostat reported the Consumer Price Index to rise 1.3% in its final reading today. While this beat the consensus forecast, it is down from 2.0% a year earlier.

Market participants were closely following the data release as an inflation miss would have likely led to speculation that the ECB would follow the Fed in looking at easing monetary policy.

There are still several concerns that could cause the ECB to announce a notable shift in stance regarding monetary policy at their next policy meeting. The same weak global growth that the Fed is looking at, for example, stands to impact Europe in the same way that it would the United States.

The markets are still considering how the Fed will act at their next meeting which is scheduled at the end of the month. Words from Fed member Evans stirred expectations of a deep cut last week. Yesterday, he commented that he expected a half percent cut by the end of the year. He added, that if the intention was to cut 50 basis point, a case could be made to make it happen right away so that inflation starts to rise sooner.

Technical Analysis

Yesterday, EUR/USD fell below support at 1.1237. As a result, the pair broke out of a range that had contained it for nearly a week.

EURUSD Hourly Chart

The decline that followed led to a test of the psychological 1.1200 handle. Just below it, there is a very interesting level.

Support at 1.1188 held the pair higher in around the middle of June. This eventually led to a rally above the 1.1400 handle. For this reason, that level is likely to be considered a line in the sand for EUR/USD bulls.

Over the near-term, I see resistance at 1.1237 considering this was the lower bound of the prior range. I think it will take a push above 1.1265 for bulls to get excited here. Because of the range break, bears are clearly in control, at least over the short-term.

Bottom Line

  • EUR/USD is getting a bit of a lift from support and after an inflation beat in the Euro area.
  • Upside resistance for the session ahead is found at 1.1237.
  • To the downside, 1.1188 is considered a major level for the pair.