EUR/USD Forecast July 15-19 – Will euro take advantage of Fed dovishness?

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EUR/USD posted moderate gains last week, after suffering sharp losses the week before. Investors will be keeping a close eye on confidence and inflation indicators. Here is an outlook at the highlights and an updated technical analysis for EUR/USD.

The European Commission released its forecast for eurozone growth and inflation. The EC confirmed that growth would drop to 1.2% in 2019, down from 1.9% in 2018. The EC lowered its inflation forecast to 1.3% for 2018, down from 1.4% in the previous estimate. Germany’s economy grew 1.4% in 2018, but the EC expects growth to drop to 0.5% in 2019.

The Federal Reserve was in the spotlight last week, as Jerome Powell appeared before congressional and senate committees. Powell’s message was dovish, sending the U.S .dollar down and equity markets higher. Powell said the Fed was prepared to “act as appropriate” and noted his concern over low inflation and weak global conditions. Powell’s message has raised expectations of a rate cut later in July, and this was reiterated by the Federal Reserve minutes, which were dovish. The CME Group has priced a rate cut at 77%. On the inflation front, June data was mixed. The headline reading remained unchanged at 0.1%. Core CPI improved to 0.3%, its strongest gain since January 2018.

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

  1. German ZEW Economic Sentiment: Tuesday, 9:00. The index plunged to -21.1 in June, much lower than the estimate of -5.7. Another weak reading is expected in July, with an estimate of -22.1.
  2. Eurozone Inflation: Wednesday, 9:00. The headline Consumer Price Index stood at 1.2% in June, according to the initial figures. Core CPI came in at 1.1%. The final read will likely confirm the first one.
  3. German PPI: Friday, 6:00. This inflation indicator has sputtered, with only one gain in the past four months. Another decline is expected in June, with an estimate of -0.1%.
  4. Current Account: Friday, 8:00. The current account surplus dropped sharply in April to EUR 20.9 billion, marking a 4-month low. The forecast for May stands at 21.1 billion.

EUR/USD Technical analysis

Technical lines from top to bottom:

1.1620 has held in resistance since early October. 1.1570 is next.

1.1515 was a high point at the end of January. 1.1435 was a low point at the beginning of February.

1.1390 was a stepping stone on the way up in late January and capped EUR/USD earlier.

The pair broke below support at 1.1345 early in the week. 1.1290 is next.

Close by, 1.1270 was a double-bottom in December 2018. It was tested late in the week.

1.1215 has been providing support since mid-June.

1.1119 (mentioned last week) has held in support since the end of May.

1.1025 was a cap back in May 2017.

1.0950 is next.

1.0829 is the final support line for now.

I am neutral on EUR/USD

The eurozone continues to struggle, which could weigh on the euro. The Fed is poised to cut rates as early as the July meeting, but with the market pricing in a rate cut, the effect on the U.S. dollar could be minimal.

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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