EUR/USD: Still Maintains The Short Bias, But With A Decreasing Conviction
INFLATION DATA FOR THE EURO AREA
Regarding the base effect of June 2019 CPI year-over-year, which was relatively high at 1.3%, it is difficult for June 2020 euro area CPI data to come any where near this mark, so we expect a continuous muted inflation at around 0.00%, or even a bit negative.
This may move the pair to the downside in the short run in response to negative data, sentiment, and the expectation that more easing from the ECB is needed to bring inflation back.
However, in the mid-term, and on a comparative basis to the U.S Dollar, this means less inflation in the euro zone compared to the United States, with a CPI differential of -0.15% in May. This negative spread may widen in June reports.
From a macroeconomic perspective, a negative inflation differential means a more expansive euro compared to the U.S Dollar.
FOMC MEMBERS TO SPEAK
Fed chair Jerome Powell is to testify, along with Treasury Secretary Steven Mnuchin, before the House Financial Services Committee. Other FOMC members are to speak this week, as well.
The most likely motive of the coming speeches is to present an optimistic tone from the FOMC members claiming a half-way victory, and that most bad data has ceased by the end of the second quarter, and it is now time to help sustain the economy in its recovery phase through using all the available monetary policy tools to reach the mandatory goals of maximum employment and price stability (inflation) near 2%.
TECHNICAL ANALYSIS
From the big picture, the EUR/USD monthly chart is following a very long-term, persistent downtrend, and is now landing at a strong Fibonacci retracement level of 61.8% near the long-term trend line.
This is a highly critical situation for the EUR/USD, which may indicate either a bottoming until the upward breakout of both critical levels (61.8% Fib, and the long-term trend line), or a pull back below the 61.8% Fib and a continuation of a downtrend, making the EUR/USD parity theory a strong case.
In the short-term, we still keep a short Bias for the EUR/USD pair, which is likely to retest the previous low of June 19, at 1.1170.
A close below that level on a daily time frame, accompanied with relatively high momentum, opens the door for more selling opportunity. Our short-term stop loss signal is a daily close above 1.1250.