FX.co ★ VIT | EUR/USD

Market Analysis and Insights: EUR/USD enters the new week with a moderately bullish short-term bias around 1.1551, after recovering strongly from the July decline. Recent market conditions have been dominated by a softer US dollar following the unexpectedly weak July employment report, while investors are waiting for the next US inflation figures. Reuters reported on August 10 that the dollar was holding near a two-month low after July payrolls unexpectedly fell, keeping markets focused on whether the Federal Reserve can still justify another rate increase. At the same time, the euro has received support from an ECB that remains alert to renewed energy-driven inflation. The broader tone is therefore favorable to EUR/USD, although the pair is approaching technically important resistance. Near-term bias: bullish above 1.1500, but confirmation requires a sustained break above 1.1600. Fundamental Analysis – Euro and European Economy: The European Central Bank currently has its deposit rate at 2.25%, with the main refinancing rate at 2.40%, after raising rates in June in response to renewed inflation pressure. At its July 23 meeting, the ECB left rates unchanged but explicitly kept the possibility of another increase open because the renewed Middle East conflict had pushed energy prices higher. Reuters reported that oil had moved toward $100 per barrel and natural-gas prices had reached their highest level in more than three years, creating renewed risks for European inflation. This is important for EUR/USD because energy-driven inflation can prevent the ECB from easing policy and can even create expectations of additional tightening. However, the euro-area economy remains vulnerable to weak industrial activity, expensive energy and slower external demand. The ECB therefore faces a difficult balance between controlling inflation and avoiding excessive pressure on growth. Wage developments and domestic demand remain important secondary signals: if wage growth stays firm while inflation expectations rise, markets are more likely to price a restrictive ECB policy for longer. Conversely, a sharp deterioration in growth would reduce the probability of further hikes and could cap the euro's gains. The geopolitical situation is also significant because Europe is more directly exposed to energy-price shocks than the United States. Any renewed escalation in the Middle East could therefore produce two opposing effects: higher inflation may support ECB rate expectations, but a broader risk-off move could increase demand for the US dollar as a traditional safe-haven asset. For EUR/USD, the euro's current fundamental advantage is therefore strongest when energy prices remain elevated without triggering a major global risk-off event. The US dollar's fundamental picture has weakened somewhat following the latest labor-market report, although US inflation remains a major obstacle to a sustained dollar decline. The Federal Reserve left the federal funds target unchanged at 3.50%–3.75% on July 29 in a 9–3 vote. Three policymakers preferred a 25-basis-point increase, demonstrating that the FOMC remains concerned about inflation. The Fed said economic activity was expanding at a solid pace, while inflation remained elevated relative to its 2% objective and was being affected by supply shocks, including energy prices. However, the July employment report delivered a significant surprise. US nonfarm payrolls fell by 23,000 in July, while previous months were revised sharply lower, and the unemployment rate declined to 4.1% partly because labor-force participation fell. Reuters reported that financial markets subsequently reduced expectations for a September rate increase. This development has weakened the dollar because lower employment momentum reduces the urgency for the Fed to tighten policy. Nevertheless, the inflation side of the equation remains unfavorable for EUR/USD bears. June US CPI increased 3.5% year over year, while core CPI rose 2.6%, and the July CPI report is scheduled for August 12. A hotter-than-expected inflation number could therefore produce a sharp rebound in Treasury yields and revive Fed-hike expectations, potentially sending EUR/USD lower. A softer CPI reading would have the opposite effect by reinforcing expectations that the Fed can remain on hold or eventually move toward easing. The US also continues to attract capital because of its deep financial markets and relatively high interest rates, but declining confidence in the US labor market and uncertainty surrounding monetary policy are reducing the dollar's recent advantage. Consequently, the fundamental balance currently leans toward EUR/USD upside, but the euro's rally remains highly sensitive to US inflation and Treasury yields. H4 Chart Technical Analysis – Price Action, Market Structure and Key Levels EUR/USD has developed a constructive recovery structure. The pair was trading near 1.1350–1.1400 during late July, with Investing.com historical data showing a July 29 close around 1.1447 after a move from the 1.1370 area. From there, the market has pushed higher toward the current 1.1551 area, indicating that buyers have regained short-term control. The important feature is that the recovery has not yet produced a decisive break of the major psychological 1.1600 barrier. Above the current price, the first resistance zone is 1.1560–1.1600, followed by 1.1630–1.1650. A sustained H4 close above 1.1600 would strengthen the bullish structure and potentially expose 1.1680 and 1.1700. On the downside, initial support is located around 1.1520–1.1500, where buyers could attempt to defend the latest advance. Below that area, 1.1450–1.1470 becomes the next important demand zone, followed by 1.1400–1.1420. The broader short-term structure remains bullish as long as the pair continues to form higher lows above 1.1450. Candlestick behavior around 1.1550–1.1600 will be particularly important. A series of long upper wicks would indicate that sellers are defending the resistance zone, while a large bullish H4 candle closing above 1.1600 would signal genuine buyer dominance. Conversely, a bearish reversal candle followed by a break under 1.1500 would suggest that the recent rally has exhausted itself. Therefore, the market is currently in a bullish consolidation phase rather than a confirmed breakout phase.

The MACD structure is also important at current levels. If the MACD line remains above its signal line and the histogram expands positively during a move through 1.1600, momentum would confirm the price breakout. However, if EUR/USD approaches 1.1600 while MACD begins producing lower highs, the pair could develop bearish divergence, increasing the probability of a correction toward 1.1500. ATR should also be monitored because volatility is likely to expand around Wednesday's US CPI release. A rising ATR accompanied by a bullish breakout would indicate genuine directional momentum, whereas rising ATR during repeated rejection candles near 1.1600 would warn of unstable price action and potential reversal. The moving-average structure remains favorable as long as the faster H4 averages stay above the slower averages, but a bearish crossover combined with a close below 1.1450 would materially damage the bullish setup. From a Fibonacci perspective, the latest recovery is approaching the upper part of its short-term retracement structure, making 1.1600–1.1630 an important decision area. Buyers dominate above 1.1500, while sellers would begin gaining control below 1.1450. The bullish scenario is a clean H4 breakout above 1.1600, targeting 1.1630, 1.1680 and potentially 1.1700. The bearish alternative is a rejection near 1.1600 followed by a move under 1.1500, opening the way toward 1.1450 and 1.1400. The dominant bias remains bullish, but the next major directional catalyst is likely to come from US CPI. The BLS has scheduled the July CPI release for August 12 at 8:30 a.m. Eastern Time, making it the most important immediate event for the pair. Overall Market Outlook: EUR/USD currently favors the bullish side, primarily because the latest US employment weakness has reduced near-term expectations for additional Fed tightening while the ECB remains constrained by renewed inflation risks. The technical structure also supports the upside while 1.1500 remains intact. The critical test is 1.1600: a confirmed H4 break above this level would signal that buyers are prepared to extend the recovery toward 1.1630–1.1700. On the other hand, failure around 1.1600 followed by a break below 1.1500 would shift the short-term structure toward neutral-to-bearish and expose 1.1450 and potentially 1.1400. The largest risk to the bullish outlook is a stronger-than-expected US CPI reading, which could lift Treasury yields and quickly restore dollar demand. Conversely, soft inflation would reinforce the recent dollar decline and could provide the catalyst needed for EUR/USD to break above 1.1600. Reuters' latest market assessment confirms that investors are already focused on the inflation data after the dollar weakened following the soft payrolls report.