EUR/USD managed to hold moderate intraday gains on Monday, moving well clear of the 1.1700 level. The currency pair is stronger than ever. It readies itself for vital inflation data from the US later this week. Traders are on bases looking at the dynamics of the market closely. They’re particularly intent on the next big economic data point that will help inform their future trading strategies.
At the moment, EUR/USD is holding above a horizontal 20 Simple Moving Average (SMA). This SMA has been bouncing around the 1.1665 range. This means we could be looking at a bullish divergence. That’s not enough to offset the fact that the 100 and 200 SMAs are both positioned well below the shorter moving average, indicating that market momentum is fading. These longer-term SMAs are beginning to lose the upward strength they had recently. This movement may be a sign of the change in sentiment returning/reversing for traders.
With regard to the trade balance, in July the seasonally adjusted surplus was €14.7 billion. This was marginally less than the anticipated surplus of €15.4 billion. This difference has likely been a big driver behind the euro’s recent rise and fall against the dollar. Resistance for EUR/USD remains formidable at 1.1800, 1.1840, and then 1.1880. On the upside, resistance levels come in at 1.1760, 1.1800, and 1.1840.
The US calendar is essentially void of major announcements until Wednesday. Traders are closely awaiting August’s Producer Price Index (PPI) due to be released that same day. The Producer Price Index (PPI) has been a central, highly watched indicator of inflation. Yet it remains one of the most important drivers of market sentiment towards the USD.
In this context, the risk skews to the upside, opening the door for additional bullish follow-through. Even with this encouraging rosy picture, the chart still shows absent momentum, which means we should manage expectations for too much quick progress in the short term. As traders get a read on changing market conditions, EUR/USD hopes to build its recovery above its recent multi-week high.
Analysts believe that the interplay between the euro and dollar will be heavily influenced by the inflation data released later in the week. Should the PPI report surprise with hotter-than-expected inflation, that could provide a solid catalyst to lift the USD. Investors would need to revise down their expectations for forthcoming Federal Reserve tightening. A weaker reading could be supportive for EUR/USD as traders would likely start to price in more persistent dovishness from US monetary authorities.