EURUSD, DXY Analysis: Is the Euro's Uptrend Over?

Key USD Events

• US Prelim GDP
• US unemployment claims
• US Core PCE (Friday)

As the Fed aims to maintain low inflation and a strong labor market, today's US unemployment claims are in the spotlight, especially ahead of next week's non-farm payrolls data. The scale of September’s potential rate cut will likely hinge on labor market conditions, impacting both the US Dollar Index and EURUSD.

Currently, the DXY is experiencing a positive rebound from its December 2023 lows, supported by an oversold Relative Strength Index (RSI). However, a definitive bullish rebound remains contingent on tomorrow’s core PCE data and next week’s non-farm payrolls.

Key EUR Events

• German Prelim CPI m/m
• Spanish Flash CPI
• Eurozone Flash CPI Estimate y/y (Friday)

Following the sharp decline in Spain’s flash Consumer Price Index from 2.8% to 2.2%, the euro is under bearish pressure with dovish expectations ahead of Germany's CPI report today, which will provide key insights into the Eurozone’s complete flash inflation estimate due on Friday.

Volatility in the EURUSD could also shift based on US economic data at market open, particularly with unemployment claims in focus.

Technical Outlook

EURUSD, DXY Analysis: DXY – Daily Time Frame – Log Scale

Source: Tradingview

The US Dollar Index is currently in a positive rebound mode, respecting its oversold RSI and December 2023 support. The 102-barrier, which aligns with the lower border of its primary consolidation and the August 5 low, is being watched as potential resistance, especially as the dovish trend continues.

On the downside, the July 2023 lows are positioned to offer support below the December 2023 lows.

EURUSD, DXY Analysis: EURUSD – Daily Time Frame – Log Scale

Source: Tradingview

While the DXY has rebounded from its December 2023 lows, the EURUSD has also bounced back from the 1.12 psychological barrier, right above the December 2023 high. However, increasing bearish pressures are evident amid dovish policy expectations.

Support for the pair is anticipated at the 1.10 level (aligned with the August 5 high) and 1.0930 (near the 2-year trendline border).

On the upside, a break above the 1.1220 barrier could realign the EURUSD with its July 2023 highs at the 1.113 level.

--- Written by Razan Hilal, CMT – on X: @Rh_waves