EUR/USD Grinds in Tight Range as Breakout Beckons

EUR/USD Price Prediction:

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The week started late with low liquidity on Monday due to the US bank holiday, which lasted much into European trading on Tuesday. EUR/USD continues to trade in a 50 pip range between the 1.0900 and 1.0950 zones as it approaches the US Open.

Policymakers at the European Central Bank (ECB) have made a number of comments coming into the week when many are hawkish over July’s rate hike. However, this has so far failed to trigger further euro gains against the US dollar as Friday’s highs are still a long way off at this stage. As noted ahead of last week’s ECB Governing Council meeting, policymakers’ rhetoric has struck a similar chord over the past few months, thus potentially explaining the limited market reaction.

There was also some light data from Europe this morning, but a lower-than-expected German PPI data provided a boost for the ECB. The construction sector rebounded in April, but construction activity slowed again, which could further fuel recession fears. Eurostat data showed construction output fell 0.4% month-on-month, following a 1.7% decline in March.

In Asian trading, the People’s Bank of China (PBOC) cut two major lending rates for the first time since August 2022 to stimulate growth. Rumors had been circulating for some time that the economic recovery and demand stimulus hoped for in China had not materialized. The People’s Bank of China (PBOC) cut the one-year loan prime rate (LPR) and the five-year mortgage rate (the standard for mortgages) by 10 basis points, which are medium-term loans used to lend to businesses and households. But after the opening of European trading, the surge in sentiment quickly faded, and market participants seemed to want more.

for the rest of the week

Housing starts and US building permits data due out later today are not expected to have a significant impact on price dynamics. With the Bank of England (BoE) interest rate decision being the main event this week, there are generally not many direct risk events for the euro or the US over the next week, which could stimulate volatility.

The biggest risk for the Eurodollar this week could come in the form of testimony from Federal Reserve Chairman Jerome Powell and comments from other Fed policymakers. After last week’s rest, market participants remain somewhat uncertain and cautious about what to expect for the remainder of 2023. It remains to be seen whether comments and testimony from Fed policymakers will clear up the issue.

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Technical outlook and final thoughts

Looking at the EURUSD from a technical standpoint, I’m still leaning towards further gains in the medium to long term. However, as noted in last week’s analyst picks, a short-term correction following last week’s uptrend is becoming increasingly attractive.

EUR/USD Daily Chart – June 20, 2023

Source: TradingView

Dropping down on the H2 chart and looking at it from an intraday perspective reveals the range since Friday’s rally. H2 candlesticks approaching either side of the range could portend a larger move. As mentioned in the short-term outlook, I’m more focused on the downside breakout with near-term support at the 1.0880 area before the H2 move around 1.0860, which coincides with the 100-day moving average, becomes the focus. .

Alternatively, a break above the top would have to contend with the psychological level of 1.1000 before the year-to-date highs become the focus of attention.

Key Levels to Watch

support level

resistance level

EUR/USD H2 Chart – June 20, 2023

Source: TradingView

Written by: Zain Vawda, Market Writer DailyFX.com

Contact and follow Zain on Twitter: @zvawda