During early European trading on Wednesday, EUR/USD was seen in negative territory around 1.1660, pressured by a rebound in the US dollar. Market participants adopted a cautious stance ahead of the release of key economic data.
The highly anticipated US Personal Consumption Expenditures (PCE) price index report for July is scheduled for release at 20:30 Beijing time. Economists anticipate that inflationary pressures remain sticky, driven by ongoing energy risks stemming from conflicts in the Middle East. The core PCE index, which excludes food and energy, is expected to show a year-on-year increase of 3.3% for July. Any signs of accelerating inflation in the US data could provide further justification for a September rate hike and bolster the dollar's performance against the euro. According to the CME FedWatch tool, market pricing currently indicates a probability of approximately 38.4% for a 25-basis-point rate hike in September, down from 67% earlier this month.
Market attention will subsequently shift to the speech by Federal Reserve Chair Kevin Warsh at the annual Jackson Hole symposium on Friday. This event could offer crucial insights into the trajectory of US interest rates.
Analysts at UOB Group noted that EUR/USD has broken out of its recent tight trading range, with price action invalidating their earlier expectations for consolidation. They recalled that two days prior, the euro traded between 1.1655 and 1.1687, closing at 1.1662, a slight decline of 0.15%. The previous day, they had suggested that price action offered no fresh cues, making further range trading likely between 1.1650 and 1.1685. However, UOB acknowledged that their assessment of range trading was incorrect, as the euro dipped to 1.1650 before rallying to 1.1679 and eventually closing at 1.1674, up 0.10%.
With this shift in price behavior, UOB observed that upward momentum is beginning to build, albeit tentatively, and believes the euro could test 1.1695 in the near term, while cautioning that the next resistance level at 1.1710 is unlikely to be threatened. On the downside, they pointed to support at 1.1665, followed by 1.1655, levels that help define a constructive bullish tone amid the gradual advance.
On the daily chart, the pair maintains a constructive bullish outlook, with the spot price firmly above the 100-day simple moving average (SMA) and the mid-band of the 20-day Bollinger Bands. The price is approaching the upper half of its recent range, while the 14-day Relative Strength Index (RSI) stands at 67.27, nearing overbought territory. This indicates robust upward momentum but also suggests the rally has become somewhat stretched.
On the upside, immediate resistance aligns with the upper band of the 20-day Bollinger Bands near 1.1705, where buyers could begin to encounter profit-taking. A sustained move above this level could open the path toward the May 8 high of 1.1788, and subsequently the April 16 high of 1.1824. On the downside, key support lies in the 1.1580 to 1.1575 region, representing the confluence of the Bollinger mid-band and the 100-day SMA. A break below these levels would undermine the bullish structure and expose further support near the lower Bollinger band at 1.1460.
EUR/USD currently sits at a delicate juncture where bullish and bearish forces are finely balanced. On the technical front, momentum is pointing upward with an eye on the 1.17 level, yet the RSI approaching overbought conditions suggests the rally is extended. On the fundamental side, the upcoming US inflation data and the Jackson Hole symposium are set to take center stage. If the PCE data surprises to the upside, a dollar rebound could stall the euro's advance. Conversely, if inflation proves moderate and Warsh delivers a dovish message, the euro could break above the 1.1705 resistance and challenge the highs at 1.1788 and potentially 1.1824. The direction of the next move may well be determined by the PCE report and the Fed Chair's remarks in the coming days.
At 14:39 Beijing time, EUR/USD was trading at 1.1660/61.