EUR/USD met some selling pressure on Monday, retreating from fresh monthly highs around 1.0920 as the US Dollar showed some signs of life. The USD Index (DXY) ticked up to the low-104.00s amid a mild pullback in risk sentiment to start the week. The modest advance in the greenback dragged EUR/USD back below the 1.0900 handle after the pair had briefly surged to its highest level since early June.
ECB Rate Decision in Focus
The main event on tap this week is the European Central Bank's monetary policy meeting on Tuesday, July 18th. Markets widely expect the ECB to keep interest rates on hold at this meeting, following last month's 25 basis point hike. However, investors are still pricing in two more 25bp rate cuts by the end of the year as the Eurozone economy shows signs of cooling.
In contrast, the Federal Reserve held rates steady at its June meeting but signaled a potential rate cut later this year, likely in December. This policy divergence between the ECB and Fed has put some downward pressure on EUR/USD Retreats as USD Shows Signs of Life in the near term. However, prospects of economic recovery in Europe combined with softening US data could help offset this dynamic and provide occasional support for the pair.
US Retail Sales and Eurozone Sentiment Data Eyed
Looking ahead, Tuesday's US Retail Sales report will be closely watched for further clues on the Fed's rate cut trajectory. Consensus expects headline sales to rise 0.5% month-over-month in June. On the European data front, the German ZEW Economic Sentiment survey and broader Eurozone ZEW Economic Sentiment release will give an updated snapshot of growth expectations in the region.
Technical Outlook | 1.1000 in Sight but Upside Capped for Now
From a technical perspective, EUR/USD's daily chart suggests that a test of the psychologically important 1.1000 level could be on the cards if bulls can maintain control. The July high at 1.0922 is the first upside hurdle, followed by the March peak of 1.0981.
However, the 4-hour chart shows waning upside momentum, with initial resistance capping gains at 1.0922 ahead of 1.0981. On the downside, support lies at the 55-day simple moving average (SMA) of 1.0832, followed by the 200-day SMA at 1.0805. A break below the latter would negate the near-term bullish bias.
The RSI indicator on the 4-hour chart has also pulled back from overbought territory above 70 to a more neutral 66, suggesting the pace of gains may be moderating.
Final Thoughts
EUR/USD kicked off the week on a softer footing as a mildly resurgent US dollar capped the pair's recent bullish momentum. With the highly-anticipated ECB rate decision on deck, the euro faces some event risk in the near term. However, the broader trend remains constructive while above key SMAs, keeping the 1.1000 handle in sight. US retail sales and Eurozone sentiment data will also be important catalysts to watch as the week unfolds.
