EUR/USD Forecast: Holds Onto Gains Despite Weak Upward Momentum

The EUR/USD currency pair is currently seeing a minor downtrend this Monday, retreating from Friday's multi-week high of 1.0970, and settling close to the 1.0900 mark. This follows a period where the US Dollar was on a downswing due to less robust than expected US inflation figures and the Federal Reserve's cautious pause. This pause ignited optimism in the financial markets, sparking speculation that the US might dodge a recession. As a result, stock markets rallied, and the typically defensive US Dollar became less appealing to investors.

The European Central Bank (ECB), on the other hand, has decided to raise its main interest rates, with plans for more increases in the future. This development, though anticipated, provided a boost to the Euro's upward trajectory.

Philip R. Lane, a member of the ECB's Executive Board, has indicated that another rate increase in July is likely, while the decision for September will hinge on economic data. His overall confidence was reflected in his statement that inflation is expected to reduce fairly rapidly towards the ECB's 2% target. Isabel Schnabel, another member of the ECB Executive Board, however, voiced her concerns about underestimating inflation, suggesting that the trajectory of interest rate hikes should have been more aggressive.

The economic calendar for the day does not offer any significant events to watch out for, and with US markets closed due to the Juneteenth holiday, the forex market is expected to witness a calm consolidation phase.

In terms of short-term technical outlook, the EUR/USD pair continues to hold onto its gains from last week, indicating a persistent bullish potential. As observed from the daily chart, the pair remains comfortably above its moving averages, despite the 20-day Simple Moving Average (SMA) showing a weakened upward momentum beneath a flat 100-day SMA. Moreover, while the technical indicators have dipped slightly, they are still considerably above their midlines, signaling a lack of robust selling interest.

The 4-hour chart suggests that the currency pair continues to face a risk skewed to the upside in the short term. The pair was seen trading in the 1.0920 regions, where it met with buying interest slightly above a bullish 20-SMA, which is trending positively above the longer ones. The Momentum indicator has resumed its ascent well into the positive zone after a correction from extreme overbought conditions, while the Relative Strength Index (RSI) is correcting its excessive readings and moving slightly downwards to around 62.

The key support levels to watch are 1.0890, 1.0850, and 1.0810, while the key resistance levels are 1.0945, 1.0995, and 1.1040. Based on macroeconomic data releases and central bank policy choices, the EUR/USD pair's trend will become clearer in the coming weeks. Investors and traders should keep a careful eye on these changes in order to make educated judgments in the Forex market.

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