Forex Technical Outlook: EUR/USD, EUR/JPY, GBP/USD

EUR/USD Forecast: Additional gains likely above 1.0020

(Eren Sengezer – FXStreet)

– EUR/USD has managed to climb above parity early Tuesday.

– The pair could extend its recovery if 1.0020 is confirmed as support.

– Focus shifts to EU sentiment and German inflation data.

Following Monday’s indecisive action, EUR/USD has gathered bullish momentum and climbed above parity during the European trading hours on Tuesday. The improving market mood helps the shared currency find demand and additional recovery gains could be witnessed in case the 1.0020 level is confirmed as support.

Heightened expectations for a 75 basis points European Central Bank (ECB) rate hike on hawkish comments from ECB officials helped the euro stay resilient against the greenback at the beginning of the week. With risk flows returning to markets on Tuesday the pair continues to edge higher. The Euro Stoxx 600 Index is up 0.7% after the opening bell and US stock index futures are rising between 0.8% and 1.2%, reflecting the risk-positive sentiment.

Later in the session, the Consumer Price Index (CPI) data from Germany will be watched closely by market participants. The market consensus shows that the annual CPI is forecast to rise to 7.8% in August’s flash estimate from 7.5% in July. Earlier in the day, the data from Germany revealed that the annual CPI in Bavaria and Hesse rose to 8.4% and 8%, respectively, from 8% and 7.6%. A stronger-than-expected inflation print from Germany could help the euro preserve its strength in the second half of the day.

Meanwhile, the European Commission will release the Consumer Confidence and Economic Sentiment Indicator figures for August. Ahead of the German inflation data, however, the market reaction to sentiment data should remain short-lived.

The Conference Board’s Consumer Confidence Index for August and July JOLTS Job Openings will be featured in the US economic docket. The CME Group FedWatch Tool shows that markets are pricing in a 70% probability of a 75 basis points Fed rate hike in September. Unless these data significantly impact the Fed rate hike odds, the risk perception could remain as the primary market driver.

EUR/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart climbed above 50, pointing to a bullish tilt in the near term. Additionally, the pair closed the last four-hour candle above both the 20 and 50-period SMAs.

On the upside, 1.0080 (Fibonacci 38.2% retracement of the latest downtrend) aligns as the next recovery target ahead of 1.0100 (100-period SMA, psychological level) and 1.0130 (Fibonacci 50% retracement).

1.0020 (Fibonacci 23.6% retracement) forms key support. In case the pair retreats below that level and starts using it as resistance, it could extend its slide toward parity and 0.9980 (50-period SMA, 20-period SMA).

EUR/JPY looks to exit bearish channel

(Christina Parthenidou – XM)

EURJPY had an impressive start to the week, but despite its bold bullish correction up to a one-month high of 138.96, the pair could not exit the bearish channel nor could it close above the 50-day simple moving average (SMA) at 139.00.

Although the MACD keeps pushing towards the positive territory and the stochastics remain positively charged, the RSI suggests that some caution is warranted as the indicator is struggling to overcome its July high.

Should buyers breach the wall at 139.00, resistance could immediately commence somewhere between the 23.6% Fibonacci retracement of the 124.38 – 144.26 upleg at 139.57 and the 140.00 round level. Slightly higher, some congestion may develop within the 141.00 – 142.00 region before the way clears towards the 7–1/2-year high of 144.26.

If the bears take charge soon below the inside swing of 138.39, the 20-day SMA and the 38.2% Fibonacci of 136.67 may attempt to prevent any depreciation towards the 135.00 mark and the 200-day SMA currently intersecting the 50% Fibonacci of 134.32. In the event the sell-off further exacerbates from here, the bears may push for a downtrend resumption under the key support area of 133.15 – 132.70 with scope to reach the channel’s lower boundary around the 61.8% Fibonacci of 130.70.

Summing up, EURJPY is looking cautiously bullish as the price is fighting for an upside channel breakout for the second consecutive day. If efforts prove successful this time, the next barrier could pop up within the 139.57 –140.00 territory. Otherwise, the next move could be south at 136.67.

GBP/USD turns bearish again in short term after dramatic slump

GBPUSD has been underperforming over the past two days, meeting a new 29-month low at 1.1670. When looking at the bigger picture, the pair has been developing within a descending channel since February with the technical indicators confirming the bearish structure.

The MACD oscillator is heading south below its trigger and zero lines, while the RSI is holding near the oversold territory. In trend indicators, the 20- and 40-day simple moving averages (SMAs) posted a bearish crossover and are following the current market price action.

If the 1.1670 support fails, then the focus would be to the downside again towards the 1.1410 mark, registered in March 2020. Additional declines from here may next pause near the 1.1300 psychological mark.

In the event of an upside reversal, the 1.1890-1.1995 resistance area, which encapsulates the short-term SMAs, could be a crucial region to have in mind. A break above it would take the market until the 23.6% Fibonacci retracement level of the downward wave from 1.3640 to 1.1670 at 1.2120, which stands near the descending trend line. More advances may switch the near-term picture to slightly positive, meeting the 1.2300 handle and the 38.2% Fibonacci of 1.2410.

Turning to the long-term picture, the market seems to be in a bearish mode given that the pair is trading below the 200-day SMA and within a downward sloping channel.