The euro has fallen by more than 10% against the dollar this year. Further prospects remain pessimistic, many analysts expect a decline in the euro, which is now able to rise above parity due to the declining dollar. This week, the positioning of EUR/USD will depend on incoming US data, the markets will focus on the key indicator for the labor market.
The US figures and the Federal Reserve's comments may bring downside risks for the euro and a possible retest of the emerging technical support level around 1.0115.
The Current Picture for the Euro
Despite a significant decline in the dollar, the euro was able to recover only a small part of the losses in recent sessions. It's all about economic prospects. The unfavorable trends are mainly related to interruptions in the supply of Russian energy resources to Europe, which particularly threatens German industry. Last week, due to the intense market attention to the drop in gas supplies to Europe, the euro was under pressure in all directions.
However, this was not enough to drop it below the technical support level in the area of 1.0115. It is worth noting that this level has been tested several times, and the single currency has managed to keep it. The euro was supported by economic data from the eurozone, including GDP, and the Fed meeting, which signaled a possible slowdown in the pace of rate hikes.
The euro enters the new week more confidently with technical resistances around 1.0246 and 1.0272.
Judging by the dollar's reaction to the Fed's decision last week, it can be assumed that market players took profits and abandoned an earlier bet against the euro, which briefly fell below parity with the dollar in mid-July.
MUFG believes that the dollar sell-off may prove to be stable and last longer than expected. Analysts report their decision to cut long positions "until the dust settles."
Euro: Where the Curve will Lead
The European economy was pleasantly surprised by the growth in the second quarter, but there are many questions about the future. Many economists and analysts predict a recession in the second half of this year. Spot data is already slowing down significantly, and further disruptions in production are likely, Goldman Sachs strategists write, referring to the continuing risks to gas supplies to Europe.
The recent recovery of the EUR/USD pair is not entirely justified, and the market has some work to do to assess the real picture, according to banking economists. Despite the fact that many analysts remain bearish about the euro, it looks good at the moment, especially if we compare the position of the single currency in July.
The current week will be tense due to the release of important US economic data, which will carry both risks and opportunities for the single currency.
The Institute for Supply Management (ISM) PMI surveys, published on Monday and Wednesday, are the key points of the economic calendar. At the end of the week, the focus will shift to the non-agricultural employment report for July.
For many currencies, in particular the euro, there is a risk that new figures from America and upcoming speeches by members of the Fed's rates committee will have a positive impact on the dollar. Markets may start making new assumptions about how much the interest rate will be raised in September.
Fed Chairman Jerome Powell made it clear that there is still the possibility of an additional tougher rate hike, as the central bank is focused on reducing inflation.
In general, as noted above, the beginning of the week was moderately positive for the euro. Moreover, further losses are not excluded for the dollar. However, the upward momentum of EUR/USD is quite weak. A rollback began again from the area of 1.0270 on Monday. In order for bulls to provide the single currency with a further rebound in the short term, it is necessary to break above the recent peaks around 1.0280. The next important obstacle will be 1.0428.