EUR/USD AND EUR/GBP FORECAST
- The Fed’s interest rate decision next Wednesday will steal the spotlight in the coming week
- The ECB monetary policy announcement on Thursday will also receive a lot of attention
- This article looks at EUR/USD and EUR/GBP’s key technical levels to watch in the near term
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EUR/USD ANALYSIS
The EUR/USD is likely to experience increased volatility in the coming week, with several high-impact events on the calendar, including the Federal Reserve decision, the second quarter U.S. gross domestic product report, June U.S. Price Consumption Expenditure data, and the ECB monetary policy announcement. While GDP and PCE figures will be scrutinized, central bank pronouncements will undoubtedly be the most important market catalysts to keep an eye on.
KEY UPCOMING MARKET EVENTS
Source: DailyFX Economic Calendar
In the United States, the FOMC is expected to raise its benchmark rate by a quarter-point to a range of 5.25% to 5.50% at the end of its July meeting on Wednesday. With this decision entirely priced-in, attention will fall squarely on guidance, specifically on whether the institution intends to deliver further hikes in 2023, as it has previously indicated.
Although weaker-than-expected June U.S. inflation figures argue for a less aggressive stance, the central bank may refrain from altering its outlook to keep its options open should price pressures reaccelerate later in the year to the point where further action becomes necessary. The economy has held up remarkably well and defied the doomsayers time and again, so this scenario is quite possible.
If the Fed retains a hawkish bias and resists outside pressure to change course, markets are likely to reprice the Fed’s terminal rate upward, sending Treasury yields, especially those at the front end of the curve, sharply higher. This would be a positive outcome for the U.S. dollar.
On the other side of the Atlantic, the ECB is also seen implementing a 25 basis-points rate rise, but with dovish undertones. With several European policymakers expressing concerns about the risks of excessive tightening and the German economy on the brink of a severe slump, President Lagarde could adopt a firm "data-dependent approach", failing to pre-commit to another hike at the September meeting.
A “dovish hike” is likely to be detrimental to the euro, leading traders to trim bets on further monetary tightening. This could prevent the common currency from extending gains against the US dollar, paving the way for what could be a moderate downward correction in EUR/USD.
| Change in | Longs | Shorts | OI |
| Daily | -5% | -1% | -2% |
| Weekly | 44% | -18% | -4% |
EUR/USD TECHNICAL ANALYSIS
The EUR/USD reached multi-month highs earlier in the week, but failed to break above Fibonacci resistance at 1.1275. After reaching this ceiling, the bears regained control of the market, repelling the exchange rate towards 1.1080, a key support to keep an eye on in the near term. If this floor gives way in the coming days, we could see a move towards 1.1000, followed by 1.0950 and 1.0840 thereafter.
In contrast, if EUR/USD resumes its advance, initial resistance appears at 1.1180, followed by 1.1275. On further strength, buyers could initiate an assault on 1.1375.
EUR/USD TECHNICAL CHART
EUR/USD Chart Created Using TradingView
EUR/GBP ANALYSIS
After a period of weakness during the second quarter, EUR/GBP has rallied in recent weeks, but has stalled at confluence resistance near the psychological 0.8700 level. For the pair to continue its rebound in FX markets, the ECB needs to inject upside momentum into the euro, but may not be able to do so given recent rhetoric from key members of the bank.
In the event that EUR/GBP (euro – British pound) fails to reclaim the upper hand and reverses lower, initial support rests around the 50-day simple moving average near 0.8610, but if the bears take out this floor decisively, prices may slump toward the 2023 lows.
Conversely, if EUR/GBP manages to regain its poise and clears overhead resistance at 0.8700 in a clean break, bulls could become emboldened to launch an attack on 0.8800, the 38.2% Fibonacci retracement of the September 2022/July 2023 sell-off.
| Change in | Longs | Shorts | OI |
| Daily | 5% | -3% | 2% |
| Weekly | -22% | 29% | -6% |
EUR/GBP TECHNICAL CHART
