- With the bulls failing to push the EUR/USD pair beyond the resistance level of 1.1200, its highest in over a year, the pair has experienced profit-taking selling.
- It pushed it towards the 1.1105 support level and stabilizing around 1.1120 at the beginning of trading today, Thursday.
- This comes ahead of the release of a batch of US and Eurozone economic data that could alter the pair’s current performance, either leading to further gains or continued selling.
What is expected for the EUR/USD price in the coming days?
According to BCA Research, the EUR/USD will surpass its 2023 highs before falling to parity. Reliable trading platforms have shown that the EUR/USD has declined in mid-week trading, but the rally could continue for a bit longer before a more concerted decline takes it to parity.
This is according to independent research provider BCA Research, which believes the euro’s recent strength is due to the dollar’s weakness ahead of the Fed’s rate cut. “The continued strength of the euro has surprised us,” says Matthew Savary, senior European analyst at BCA Research. Added, “However, it is a common pattern ahead of the Fed’s rate cuts. As such, EUR/USD will weaken this fall.”
According to forex trading, EUR/USD gained 3.0% in August, but has started to decline from its peak at the time of writing. In fact, the exchange rate is down half a percent on the day, which if it continues through the close, would be its biggest daily loss in August. But the analyst says he is on the sidelines on EUR/USD and “will consider selling EUR/USD again closer to the Fed meeting in September.”
The analyst adds, “Over the next four weeks, the EUR/USD pair is likely to surpass its July 2023 high of 1.13. However, this level will be a selling point.”
Overall, the Euro, along with the rest of the G10 major currencies, has benefited from growing expectations that the Federal Reserve will cut US interest rates in September. These expectations have been strongly reinforced by the recent speech of Federal Reserve Chairman Jerome Powell at the Jackson Hole symposium, where he said “the time has come” to act.
Analysts point out that the progress of the EUR/USD pair comes despite the shaky fundamentals of the Eurozone, as confirmed by German GDP figures this week, which showed that the region’s largest economy contracted by 0.1% on a quarterly basis in the second quarter. The German Ifo institute survey showed a further deterioration in current conditions in August, and German consumer confidence for September declined against expectations. With third-quarter survey data deteriorating compared to the second quarter, this increases the risk of a shallow recession in Germany. Meanwhile, the release of the Eurozone Purchasing Managers’ Index last week showed a deterioration in expectations among Eurozone companies, indicating a slowdown in activity in the coming months.
In addition, the weakness in the employment component of the eurozone PMI report suggests that European employment is likely to deteriorate in the coming months, which could prompt the European Central Bank to cut interest rates faster than markets currently expect. the analyst added, “The ECB is unlikely to lag behind the Fed’s pace of easing over the next 16 months, as financial markets currently expect. Given that EUR/USD is overbought, the reward-to-risk ratio for pursuing EUR/USD is increasingly weak,”.
BCI Research expects the euro to test parity with the US dollar early next year, “once investors start to worry about a global recession, and the relative mispricing between the Fed and the ECB is corrected.”
EUR/USD Technical analysis and forecast:
Reaction to the announcement of German inflation figures, then US data led by GDP growth and weekly jobless claims, along with statements from some Fed policy officials. The picture will be drawn by the closing of EUR/USD trading, which is closer to the upside. Technically, moving towards and above the 1.12 resistance moves technical indicators towards strong overbought levels. On the other hand, and on the same time frame, the daily chart will have importance for the 1.0960 support level to evaporate the current upside hopes.
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