US Dollar Forecast: EUR/USD Bounces Back Ahead of Monthly Low

US Dollar Outlook: EUR/USD

EUR/USD snaps the series of lower highs and lows from last week as it bounces back ahead of the monthly low (1.0668), but the exchange rate may stage further attempts to test the May low (1.0650) as the Federal Reserve retains a restrictive policy.

US Dollar Forecast: EUR/USD Bounces Back Ahead of Monthly Low

EUR/USD may trade within the broad range from earlier this year as the 50-Day SMA (1.0771) no longer reflects a negative slope, and the exchange rate may retrace the decline from the monthly high (1.0916) as the update to the US Personal Consumption Expenditure (PCE) Price Index is anticipated to show slowing inflation.

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US Economic Calendar

FOREX.com Economic Calendar

The core PCE, the Fed’s preferred gauge for inflation, is expected to narrow to 2.6% in May from 2.8% per annum the month prior, and evidence of slowing price growth may produce headwinds for the US Dollar as it encourages the Federal Open Market Committee (FOMC) to implement a rate-hike this year.

However, a higher-than-expected core PCE print may put pressure on the FOMC to further combat inflation, and signs of persistent price growth may generate a bullish reaction in the Greenback as raises the Fed’s scope to keep US interest rates higher for longer.

With that said, EUR/USD may stage further attempts to test the May low (1.0650) if it struggles to trade back above the 50-Day SMA (1.0771), but the exchange rate may retrace the decline from the monthly high (1.0916) as it snaps the series of lower highs and lows from last week.

EUR/USD Chart – Daily

Chart Prepared by David Song, Strategist; EUR/USD on TradingView

• EUR/USD bounces back ahead of the monthly low (1.0668) to hold within last week’s range, with a break/close above 1.0770 (38.2% Fibonacci retracement) raising the scope for a move towards the 1.0860 (50% Fibonacci retracement) to 1.00880 (23.6% Fibonacci extension) region.
• Next area of interest comes in around the monthly high (1.0916), but EUR/USD may track the broad range from earlier this year as the 50-Day SMA (1.0778) no longer reflects a negative slope.
• At the same time, EUR/USD may stage further attempts to test the May low (1.0650) if it struggles to push back above the moving average, with a breach below the 1.0610 (38.2% Fibonacci retracement) to 1.0640 (1.0640 (23.6% Fibonacci retracement) area bringing the April low (1.0601) on the radar.

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--- Written by David Song, Strategist

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