- Market focus shifted from inflation to US employment data.
- US PCE data revealed an expected increase of 0.2%.
- Eurozone services inflation remained high, dampening bets on an ECB rate cut.
The EUR/USD forecast points to the south. However, the pair recovered slightly as the dollar fell ahead of the all-important US jobs report. At the same time, US markets remained closed for the holiday, keeping trading light.
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The dollar eased from its two-week high on Monday as focus shifted from inflation to US employment data. Last week, the dollar ended Friday after PCE data revealed an expected 0.2% increase. After the report, markets cut the likelihood of a rate cut by 50 basis points, boosting the dollar. However, uncertainty about the size of the cuts will continue as more data comes in.
In particular, investors are looking forward to the non-farm payrolls report, which could significantly change expectations for a rate cut. Economists expect an increase of 165,000 jobs in July. Meanwhile, the unemployment rate could drop from 4.3% to 4.2%. The positive report is likely to boost the dollar by solidifying bets for a smaller rate cut. On the other hand, another down month could increase the chances of a rate cut by 50 basis points, weighing on the dollar.
Meanwhile, the euro rallied on Monday as investors reviewed euro zone inflation data. Initially, the currency fell after German inflation was softer than expected, raising expectations for an ECB rate cut. However, euro zone inflation showed a mixed picture later on Friday. Core inflation eased from 2.6% to 2.2%, as expected. However, services inflation remained high, dampening bets on an ECB rate cut.
EUR/USD key events today
The pair could start the week slowly as there are no key reports. At the same time, trade will remain weak due to the US holiday.
EUR/USD Technical Forecast: Price is recovering within a downtrend
On the technical side, the EUR/USD price is recovering after making a new low below the support level at 1.1100. However, the bears remain in charge as the price is trading below the 30-SMA, with the RSI below 50.
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Notably, the trend reversed when the price reached the resistance level of 1.1201. EUR/USD broke below the 30-SMA after a bearish divergence. After that, the price started making lower highs and lows, confirming a new downtrend. Therefore, the price could retest 1.1100 before targeting the next support at 1.1001.
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