(MENAFN- Daily Forex)
The EUR/USD exchange rate is in an undeniably bullish trend, and while it looks overbought, it would take a brave bet to bet against further gains this week. At the same time, we would caution against any volatility at the end of the month. The EUR/USD gains have stabilized around the 1.1200 resistance level, the highest level for the currency pair in more than a year.
EUR/USD Technical analysis and forecast:
Overall, the EUR/USD pair rally makes it overbought according to the Relative Strength
index (RSI), which is now at 70. Technically, the exchange rate was certainly overbought last week. Also, the relatively flat trading in the EUR/USD pair on Monday and into Tuesday allowed some overbought conditions to ease.
Consequently, this serves as a reminder that the RSI can reverse from overbought at a stable exchange rate and does not necessarily signal a pullback. The overarching theme we're looking for at the end of the month is a more subdued EUR/USD price action, with recent highs likely to be out of reach for now.
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Commenting on the performance of the most traded pair in the forex market, analyst Sean Osborne at Scotia Bank sees another technical signal indicating near-term exhaustion. Although his thesis is that the near-term weakness will prove limited. The analyst said, "Short-term trading patterns suggest that the euro price may have peaked in overnight trading after forming a bearish 'evening star' pattern on the 6-hour charts. Minor losses through quiet European trading tend to confirm this development. But losses are likely to remain limited in the near term at least."
According to reliable trading platforms, the Euro rose sharply against the US Dollar on Friday after Federal Reserve Chairman Jerome Powell effectively gave the green light to cut US interest rates in September: Powell said in a speech at the Jackson Hole symposium, "The time has come to adjust policy."
The speech was a surprise because it repeatedly pointed to concerns that the Labor market was at risk of deterioration, suggesting that the Fed needed to cut US interest rates to protect jobs. Furthermore, Financial markets had raised expectations that the Fed could start the US rate-cutting cycle with a large 50 basis point cut.
Overall, the US dollar's trading this week will be determined by the evolution of expectations for a 50-basis point rate cut: if expectations increase, the euro could rise against the US dollar (EUR/USD). If expectations fade, the exchange rate could fall again. The highlight of the economic data will be the release of the personal consumption expenditures deflator on Friday, a measure of inflation that affects consumers. The US Federal Reserve tends to watch it closely, but we think there is limited opportunity for some kind of surprise that could change the broader narrative.
In his speech at Jackson Hole, Jerome Powell added that he is confident that US inflation will not return suddenly and that it is now more focused on the Labor market. Obviously, this suggests that the release of the US Non-Farm Payrolls report in early September will be the next major event for the US dollar.
The next major data release in the US will be the US jobs report on Friday. However, be aware that we are also approaching the end of the month. This can lead to some unusual non-news Forex market movements, and we will not see any unusual moves as a sign that current trends are changing.
On the stock exchanges front, European stocks were generally higher on Tuesday, recovering from yesterday's subdued session as financial markets continued to assess the latest economic data and gauge potential responses from major central banks. According to trading, the euro zone's STOXX 50 index rose 0.2% to more than 4,900, while the pan-European STOXX 600 index added 0.3% to approach the 520 thresholds, its highest level in more than a month. Recently, it has been supported by major mining stocks in the broader index as the London Stock Exchange reopened after a longer weekend.
According to an economic announcement, German consumer confidence as measured by GfK unexpectedly fell to its lowest level since May, underscoring the weak sentiment in the currency bloc's largest economy after yesterday's poor Ifo results. However, financial stocks rebounded with Santander, BNP Paribas, Munich Re and Allianz adding between 1.3% and 0.5%. Automakers also rose, led by Stellantis, BMW and Mercedes. Elsewhere, technology stocks continued to fall, with ASML down 0.5% ahead of Nvidia earnings today.
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