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EUR/USD pares gains ahead of consumer confidence data

• Eurozone consumer confidence to improve to -13.2 vs -14
• US politics remain in focus as Kamala Harris gains Democrat support
• EUR/USD struggles below 1.09

EUR/USD is on the back foot, giving back yesterday's gains and trading below 1.09 in a cautious market mood.  

Signs of fatigue in the latest EUR/USD rally raise questions over whether the pair can easily break the 1.10 level.

Attention is now on eurozone consumer confidence data, which is expected to improve slightly to -13.2, up from -14. The slight improvement in morale comes as the ECB cut interest rates in June by 25 basis points. However, the ECB left rates unchanged in the July meeting and hasn’t committed to another rate.

ECB policymaker De Guindos confirmed that inflation is falling in line with predictions. His comments come after ECB’s Peter Kazimir said yesterday that the market expectation of two rate cuts this year wasn't misplaced.

ECB rate cut expectations are more or less in line with Fed rate cut expectations for this year. After cooling inflation and a more dovish-sounding Fed Powell, the market is fully pricing in two Fed rate cuts this year.

Politics remain in focus as Kamala Harris appears to have the necessary Democratic support to be the official nomination for the Presidential election. The race between Kamala Harris and Trump is expected to be tighter, and as a result, the USD is unwinding some of the Trump trade. The USD has pared some of last week's games, which stemmed from expectations of inflationary policies from Trump.

Today, there is just mid-tier data with home existing home sales data for June and Richmond Fed manufacturing index for July.

After the close, Google parent Alphabet, Tesla, and Visa will be among the top companies reporting second-quarter earnings.
 

EUR/USD forecast – technical analysis

EUR/USD trades within a rising channel dating back to mid-April. The price recently ran into resistance at the upper band of the rising channel at 1.0940 and has eased lower, consolidating around 1.09.

Buyers will look to rise back above 1.0915, the June high, and 1.0950, the July high, to extend gains towards 1.0980, the March high, and 1.10, the psychological level.

Meanwhile, sellers will need to break below the 200 SMA at 1.08 to negate the near-term uptrend. Below here 1.07, the lower band of the rising channel.

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Oil holds steady near a monthly low

• China demand concerns weigh on oil prices
• API inventory data is expected to show a 2.5M barrel draw

Oil prices are holding steady after falling sharply across the previous two sessions amid concerns about plentiful supply and weak demand.

The oil market has broadly ignored the latest developments in the US elections, as neither Kamala Harris nor Donald Trump are expected to promote policies that would greatly affect oil or gas operations.

Still, oil processes have fallen sharply over the past week due to concerns over demand in China after the GDP growth was weaker than expected, pointing to a weak economic recovery. Yesterday’s PBoC rate cut did nothing to support oil.

Today, the API Institute will release oil inventory data, and crude stockpiles are expected to have fallen by 2.5 million barrels, while gasoline stocks likely dropped by 500,000 barrels.

Earlier in the week, Morgan Stanley forecasted that the crude oil markets will likely be in surplus next year, which will drag prices toward $70 per barrel.

Seasonal demand is expected to abate in the fourth quarter as market balances return, which could be the same time as OPEC and non-OPEC supply return to growth.
 

Oil forecast – technical analysis

Oil prices ran into resistance at 84.40 and rebounded lower, breaking below the near-term rising trendline and below 80.00, dropping to support at 77.55. The price has recovered from the low and pushed above the 200 SMA at 79.00.

Sellers will look to break below 77.50 to extend losses towards 75.00 and 72.00.

Should buyers hold above the 200 SMA, a rise towards 80.00 could be on the cards. Above here 84.40 comes back into focus.

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