- The dollar rose as geopolitical tensions escalated in the Middle East.
- The Fed kept rates on hold but opened the door to a rate cut in September.
- Eurozone inflation rose unexpectedly in July.
The EUR/USD forecast shows the pair in freefall as the greenback rises amid safe-haven demand. However, the outlook for the dollar is weaker after the Fed signaled a possible rate cut in September. Meanwhile, bets on an ECB rate cut remained intact despite surging inflation.
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The dollar rose on Thursday as geopolitical tensions escalated in the Middle East. Tensions rose after the leader of Hamas was killed in Iran. The killing dampened hopes for a successful ceasefire agreement that would reduce tensions between Israel and Hamas.
Meanwhile, the dollar fell on Wednesday after a somewhat dovish Fed policy meeting. The US central bank kept interest rates on hold but opened the door to a rate cut in September. Powell said that if inflation continues to fall as expected, the Fed may be ready to cut borrowing costs in September.
However, he also cautioned that policymakers will continue to monitor incoming data ahead of the next meeting. Investors are fully pricing in the first cut in September. Moreover, they increased the size of the cuts expected this year to 72bps.
Further pressure on the dollar came from the ADP jobs report. In particular, private employers hired 122,000 more people than expected. Economists forecast 150,000 additional private jobs.
Meanwhile, inflation in the eurozone rose unexpectedly in July. CPI rose 2.6% after a 2.5% increase in June. However, there was little impact on expectations for a September ECB cut. Notably, services inflation eased from 4.1% to 4.0%, which is a slight relief for policy makers.
EUR/USD key events today
- US unemployment claims
- US ISM manufacturing PMI
EUR/USD Technical Forecast: Bearish momentum building after 30-SMA resistance
On the technical side, the EUR/USD price suddenly fell sharply after retesting the 30-SMA resistance. Consequently, the price fell well below the SMA, indicating solid bearish momentum. Similarly, the RSI is rapidly approaching the oversold region.
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Earlier, the downtrend was slow and shallow, sticking close to the SMA. Furthermore, the RSI has made a bullish divergence, indicating weaker bearish momentum. However, recent momentum gains could push the price to the key 1.0750 level. At the same time, the RSI could fall into the oversold region.
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