Next up comes 1,1000

• EUR/USD fell further and slipped below 1.0900 on Thursday.
• The dollar remained well-bought on firm prints from the US labor market.
• Concerns about a potential slowdown in the US economy have eased further.

EUR/USD faced further selling pressure, adding to the weekly decline and revising below 1.0900, or four-day lows. The pair’s negative price action was driven by the ongoing recovery of the US dollar (USD) and overall positive sentiment in global equity markets.

That said, the USD Index (DXY) continued its upward trajectory, breaking above the 103.50 level and supported by further depreciation in the Japanese yen and another positive day for US yields in general.

Adding to the positive outlook for the USD, concerns about an intermeeting interest rate cut by the Fed have dissipated. This shift was reinforced by robust weekly US initial jobless claims (+233K) prints, as well as recent remarks from Fed officials who suggested markets may have overreacted to the recent Non Payrolls reading. -US agricultural (+114K in July). They also played down the likelihood of a recession, while hinting at potential interest rate cuts to prevent such an outcome.

Meanwhile, in the German fixed income space, 10-year bund yields continued their weekly gains, although they appear to be struggling to break the 2.30% barrier for now.

As for the Fed and the USD, market expectations for a 50 bps rate cut in September still remained in place, with CME Group’s FedWatch tool indicating a nearly 54 percent probability of such a move, down from about 65 % on the previous day.

If the Fed proceeds with more significant rate cuts, the policy gap between the Fed and the ECB could narrow over the medium term, potentially supporting further gains for EUR/USD.

However, in the longer term, the US economy is expected to outperform its European counterpart, suggesting that any USD weakness may be temporary.

EUR/USD daily chart

EUR/USD short-term technical outlook

Further north, EUR/USD is likely to test the August high of 1.1008 (August 5) before the December 2023 peak of 1.1139 (December 28).

On the downside, the pair’s next target is the 200-day SMA at 1.0832, which precedes the weekly low of 1.0777 (August 1) and the June low of 1.0666 (June 26), all before the low of May 1.0649 (May 1). ).

Looking at the big picture, the pair’s positive bias should hold if it continues to trade above the crucial 200-day SMA.

So far, the four-hour chart shows erratic price action. The initial resistance level is at 1.1008 before 1.1132. On the other hand, immediate contention is at 1.0881 ahead of the 200-SMA of 1.0835 and then at 1.0777. The Relative Resistance Index (RSI) settled around 50.