EUR/USD Technical Analysis: Expected to Extend Rallies

New hints from European Central Bank policy officials confirm that the bank is determined to continue tightening its policy, which supported new gains for the EUR/USD currency pair. The pair reached the 1.0976 resistance level and settling around 1.0955 at the beginning of this week’s trading. Yesterday, European Central Bank (ECB) Governor Christine Lagarde confirmed that the bank is unlikely to announce a peak in interest rates in the near future. With continued uncertainty regarding the persistence of inflation rates, the likely peak inflation rates will depend on the pace of development of economic data and other influencing forces over time.

The euro is expected to extend its rally against the dollar in the second half of this year, says a new strategy note from investment bank Nomura which argues that the worst may be already behind the pulse of economic data in the eurozone. In this regard, the strategist Jordan Rochester, who started to buy the euro against the dollar, said that the euro zone data “rarely gets worse than this.” And “We already know that European data is weak. Data surprises are in the dumps, so markets will be less reactive after last week’s PMI surprise. Whether we like to admit it or not, part of the forex bounce is driven by data surprises that usually turn around when it’s in the extreme.”

Overall, the eurozone economy is in recession according to official data, and the latest batch of economic surveys in a timely manner indicates a continued deterioration, with S&P Global’s purchasing managers’ indices for June indicating a contraction in the economy. According to market trading, the exchange rate of the euro against the dollar (EURUSD) fell on the same day that the data was released but returned above 1.09 at the time of writing this report, which indicates a weakness in the market’s desire to pressure the pair down.

The analyst added, “If I were shorting EUR/USD, I would be concerned about that which means the nature of the data surprises (because of the bounce) is reversed.”

There are other factors to consider when approaching the EURUSD, including the Fed, where the analyst believes the appetite for further rate hikes is waning. He asks: “With the US Federal Reserve introducing a ‘skip’ and US inflation convincingly falling, do you want to bet on a hawkish Fed (weaker EURUSD?).

The analyst believes that the second half of 2023 will see the market confirm its conviction that the Federal Reserve will start cutting US interest rates in 2024 in a development that could help the euro to rise.

Meanwhile, the terms of trade dynamics in the eurozone have improved a lot compared to last year, and this can be expected to provide further support to the single European currency. “Euro terms of trade might be the balancing factor – would point to 1.15 to 1.20: natural gas prices remain relatively restrained, oil too = and trade flows in the eurozone in a healthier place. Maybe make up for the price story? Nomura’s analysis team is buying EUR/USD and targeting a move to 1.12 by the end of August, 1.16 next year is likely and maintains a 3/5 level for trading.

The analyst added, “We maintain the view that it will not take long for the last saw of EUR/USD to end and that the situation for the euro in 2023 is almost the opposite of what it was in 2021. Energy prices are likely to remain low or decline, thanks to the global situation. Slowing economy, support for eurozone terms of trade.”

• According to the performance on the daily chart below, the price of the EUR/USD currency pair moved towards and above the psychological resistance 1.1000.
• This will support the bulls’ control over the trend and warns of a stronger upward move after that.
• This may happen if the positive momentum continues from the expectations of raising interest rates from the European Central Bank.
• After the psychological resistance 1.1000, the next resistance levels will be 1.1065 and 1.1120, respectively.

On the other hand, if the currency pair returns to the vicinity of the support level 1.0885, the current upward hopes will evaporate. Today, the euro/dollar will be affected by the comments of global central bank policy officials. What concerns the pair are the statements of Lagarde and Jerome Powell.

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