EUR/USD forecast: Signal as hopes of Fed and ECB divergence rise

July 15, 2023 12:44 AM PDT | By Invezz

Fed and ECB divergence

The EUR to USD exchange rate has been in a strong bullish trend in the past few months. This rally continued this month after the US published a series of weak economic numbers.

Jobs data showed that the labor market was losing steam even as the unemployment rate dropped to 3.6%. The economy added over 209k jobs in June while the statistics bureau slashed the previous two month’s estimates.

Meanwhile, inflation data published this week warned that the US could move into deflation in the next few months. First, Chinese data showed that inflation stood at 0.0% in June and there is a likelihood that the situation will get worse.

In the United States, the headline consumer price index data dropped to 3.0% from th previous month’s 4.1%. It has dropped from a peak of 9.1% during the pandemic. Therefore, if the trend continues, there is a likelihood that inflation will move below 2% soon.

Therefore, a combination of falling inflation, soft labor market, and an inverted yield curve mean that the Fed has little room to continue hiking interest rates. I expect it to hike by 0.25% this month and then take a strategic pause.

Therefore, the EUR/USD pair has jumped since the scenario is different in Europe. While Spain’s inflation has dropped below 2%, most countries are seeing strong inflationary pressure. Therefore, the ECB still has at least two more hikes to implement.

EUR/USD technical analysis

EURUSD chart by TradingView

The weekly chart shows that the EUR to USD pair has been in a strong bullish trend in the past few months. It has now moved slightly above the important resistance level at 1.1104, the highest point on April 24th. Most importantly, the pair jumped above the 200-week moving average, signaling that buyers are still in control.

Therefore, the outlook for the pair is bullish, with the next level to watch being at 1.1500. A drop below the support at 1.1100 will invalidate the bullish view.

The post EUR/USD forecast: Signal as hopes of Fed and ECB divergence rise appeared first on Invezz.

Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media LLC (Kalkine Media, we or us) and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures/music displayed/used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source (public domain/CC0 status) to where it was found and indicated it, as necessary.