The EUR/USD and some of the other popular euro crosses such as the EUR/GBP fell on the back of a bigger-than-expected drop in Eurozone inflation data released earlier this morning. We also had a stronger JOLTS jobs opening report released moments ago, which further aided the dollar recovery. The only issue for the euro bears is that they were already expecting the European Central Bank to lower the deposit rate to 2% on Thursday anyway, so this weaker inflation report does not change anything in that regard. Still, the drop in core inflation in May to 2.3%, and not forgetting the headline CPI easing to 1.9%, suggests there is a possibility that inflation could, surprisingly, undershoot expectations in the months ahead, if the trade war uncertainty eases. That is a BIG IF. The most likely scenario remains that we could see further euro appreciation in the near-term outlook, as investors continue to dump in the dollar amid concerns of mismanagement of the US economy by the Trump administration. A big worry is the rising debt levels and increasing cost of debt servicing. Without a strong rebound in the economy, there are no plans in place to deal with this issue, which, ultimately, may come back to haunt the US economy in the long-term. Therefore, despite the drop in eurozone inflation, it is far too early to turn negative on the EUR/USD forecast.

EUR/USD forecast: Tariff tantrums and growth jitters likely to keep USD undermined

In more recent days, we have seen the EUR/USD benefitting from the fresh uncertainty over trade talks, with the US dollar, once again, taking a hit. The greenback was making a comeback today, but with Donald Trump again throwing a spanner in the works, this time by doubling tariffs on steel and aluminium to 50%, the recovery may not last long. The move injected a touch of volatility into markets on Monday, although not quite the tremors we saw in early April. By now, traders have grown rather accustomed to these skirmishes, often treating tariff headlines as buying opportunities of risk assets on the assumption that Trump will eventually walk back his threats. Whether this time proves any different is anyone’s guess.

Of course, tariffs aren’t the only thing giving the US dollar a touch of indigestion. The OECD has entered the fray with a rather sobering warning on US growth, further dampening sentiment towards the greenback.

Bond markets have been blinking amber — US long-term yields have marched higher in recent weeks, although Treasuries managed to catch a bit of a bid today, bolstered by solid demand at a Japanese 10-year auction. That said, this could be a temporary respite.

Then there’s the data — and it’s beginning to sound more cautionary than comforting. Today’s JOLTS report showed job openings rising unexpectedly to 7.39 million compared to 7.11m expected. But this comes on the back of a recent run of poor data. Friday’s non-farm payrolls are forecast to confirm a slowdown in job creation.

Technical EUR/USD forecast and key levels to watch

Source: TradingView.com

So far, the EUR/USD is holding its own quite well despite today’s weakness. It has been creating higher highs and higher lows, holding above key levels and moving averages. Until we see a bearish reversal pattern, the technical path of least resistance will remain to the upside.

Short-term support was being tested at the time of writing at 1.1390, which was the high from Friday. Below that, the next support is coming in around 1.1300, and finally the 1.1215-1.1220 region.

On the upside, 1.1450 has turned into resistance for now. A break above that would open the door to 1.1500 and possibly the April highs near 1.1570. But fall below the 1.1210-1.1265 support band? That’s where the bullish story starts to crack.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R