EUR/USD Forecast: All attention is now on Jerome Powell and US data

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The US Dollar (USD) managed to regain some composure on Monday, triggering a reaction in the Dollar Index (DXY) back towards the 105.00 region amid a broad pullback in US yields across different maturities.

The Dollar’s rally revived some selling pressure on the EUR/USD, dragging it back to the 1.0830 zone amid a decrease in political concerns following the second round of elections in France on Sunday.

The macroeconomic outlook remained relatively stable on both sides of the Atlantic. The ECB is considering further rate cuts beyond the summer, with market expectations leaning towards two additional cuts by year-end. In contrast, market participants are speculating whether the Fed will implement one or two rate cuts this year, despite the Fed’s current projection of a single cut, likely in December.

However, the latest Non-Farm Payrolls data (+206,000 jobs) gave more credibility to the idea that the Fed could start its easing cycle as early as September.

The ECB’s rate cut in June, combined with the Fed’s decision to hold rates steady, has widened the policy divergence between the two central banks. This divergence could lead to further weakness in the EUR/USD in the short term. However, the prospects of economic recovery in the Eurozone, along with perceived weaknesses in the US economic fundamentals, could mitigate this disparity and provide occasional support to the currency pair in the near term.

Looking ahead, the upcoming testimonies of Chairman Jerome Powell and the release of US inflation figures tracked by the CPI are expected to be the main drivers of the pair’s price action, at least in the very short term.

Short-term technical outlook for EUR/USD

A further bullish momentum should put the EUR/USD on track to test the July peak of 1.0845 (8 July), closely followed by the weekly high of 1.0852 (12 June) and the June high of 1.0916 (4 June). If the pair breaks above this level, it could bring the March peak of 1.0981 (8 March) back into focus, before the weekly high of 1.0998 (11 January) and the psychological level of 1.1000.

If the bears take control, the pair could fall to its June low of 1.0666 (26 June), then to the May low of 1.0649 (1 May), and finally to the 2024 low of 1.0601 (16 April).

Looking at the broader picture, further gains are expected if the crucial 200-day SMA (1.0797) is consistently surpassed.

So far, the 4-hour chart suggests a continuation of the bullish momentum. The initial barrier level is 1.0845, then 1.0852. The nearest support is at 1.0784, then at 1.0709, and finally at 1.0666. The Relative Strength Index (RSI) deflated below 63.