EUR/USD Forecast: Dollar loses slightly on a quiet day

• Market focus shifted from inflation to US employment data.
• US PCE figures showed an expected 0.2% increase.
• Eurozone services inflation remained high, reducing bets on ECB interest rate cuts.

The EUR/USD forecast is headed south. However, the pair recovered slightly as the dollar fell ahead of the all-important US employment report. At the same time, US markets remained closed for a holiday, keeping trading thin.

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The dollar fell from a two-week peak on Monday as the focus shifted from inflation to US employment data. Last week, the greenback closed lower on Friday after PCE numbers revealed an expected 0.2% increase. After the report, markets discounted the likelihood of a 50 bps rate cut, boosting the dollar. However, uncertainty about the size of the cuts will continue as more data comes in.

Investors are especially anticipating the non-farm payrolls report, which may significantly alter rate cut expectations. In particular, economists expect an increase in the number of jobs of 165,000 in July. Meanwhile, the unemployment rate could fall from 4.3% to 4.2%. A positive report will likely boost the dollar by strengthening bets for a smaller rate cut. On the other hand, another bad month could increase the chances of a 50 bps rate cut, weighing on the dollar.

Meanwhile, the euro strengthened on Monday as investors digested euro zone inflation data. The currency initially fell after German inflation fell less than expected, raising expectations of ECB interest rate cuts. However, eurozone inflation on Friday showed a mixed picture. Headline inflation eased from 2.6% to 2.2%, as expected. However, services inflation remained high, lowering bets for an ECB rate cut.

Key EUR/USD events today

The pair could start the week slowly as there are no key reports. At the same time, trading will remain weak due to a holiday in the US.

EUR/USD Technical Forecast: Price is recovering within the downtrend

Technically, the EUR/USD price is recovering after making a new low below the 1.1100 support level. However, the bears remain in charge as the price trades below the 30-SMA with RSI below 50.

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Notably, the trend reversed when the price reached the 1.1201 resistance level. EUR/USD broke below the 30-SMA after a bearish divergence. Subsequently, the price began making lower highs and lows, confirming a new downtrend. Therefore, the price could retest 1.1100 before targeting the next support at 1.1001.

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