After shattering the 1.10000 psychological level, the EURUSD currency pair has continued on its run higher, driven by the market’s growing appetite for risk assets. The pair is back in a long-term uptrend, primarily due to the Greenback’s faltering following the release of weak U.S. fundamentals.
U.S. inflation cooled to 3% in June from 4%, while the services and manufacturing sectors continue showing signs of subdued activity. Furthermore, the Nonfarm Payrolls dropped for the month of June, from 306K to 209K, signalling that the labour market is also somewhat taking the brunt of high-interest rates. Will the Euro continue to take advantage of weaker U.S. fundamentals?
Technical
The EURUSD currency pair has recommenced its uptrend after the pair crossed above the 100-day moving average and fled further away from it to the upside, within an ascending channel. Bears could not keep up any selling pressure, forming shallow retracements, while prior highs have been broken with conviction, leaving behind new support levels and a cup-and-handle pattern in the process.
The breakout above 1.10935 left behind a support level, while a high formed in the first quarter of 2022 is now in the picture, providing a significant level of resistance at the 1.13668 level. If bullish momentum fails to give, the 1.13668 level could be tested in the short to medium term, supported by weaker U.S. fundamentals.
Alternatively, given that the pair is trading at extremes of the overbought side of the Relative Strength Index and at the upper trendline of the ascending channel, a reversal could be imminent. Bears will likely earmark the 1.10935 level as a point of interest if they commit to lowering the pair.
Summary
U.S. policymakers have hinted at the possibility of a slowdown in rate hikes as the steep interest rates take full effect. In contrast, the European Central Bank is committed to lowering inflation, with more rate hikes potentially on the table. A policy divergence could support the Euro at the expense of the Greenback, leaving the 1.13668 level probable.
Sources: U.S. Bureau of Labor Statistics, Federal Statistical Office, CME, Reuters, TradingView
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