Forex overview. EUR/USD: Long Euro Trade Is Stress-Tested – ForexNews.PRO
USD: Dollar Outlook Remains Uncertain
After experiencing a challenging stretch, the dollar gained modest support yesterday. Positive domestic data contributed to this improvement, with weekly jobless claims declining further, the service sector boosting the US composite PMI to its highest level since last December, and June’s new home sales showing resilience. Meanwhile, US equity markets continued pushing to record highs, fueled by strong second-quarter earnings reports and expectations of a Federal Reserve rate cut later this year.
Regarding equity performance, buy-side surveys indicate that investor cash reserves are relatively low, suggesting that the market may soon be fully invested. While an apparent catalyst for a market correction isn’t currently evident—though looming tariff deadlines in August could reignite concerns—it seems traders will need to remain agile throughout the summer.
Today’s US calendar is relatively quiet, setting the stage for a packed schedule next week, featuring the FOMC meeting, June PCE inflation data, tariff deadlines, and July payrolls reports. Amid widespread market skepticism about the dollar, we still anticipate moderate stability over the summer, driven by higher inflation and delayed Fed rate cuts. However, this outlook clashes with prevailing bearish sentiment around the currency.
The US Dollar Index (DXY) is projected to hover in a 97.00-97.70 range, though there are downside risks if strong German Ifo data propels EUR/USD higher during European trading hours.
GBP: Less Dovish ECB Strengthens EUR/GBP
A more hawkish stance from the ECB has brought EUR/GBP near the 0.87 mark. Today’s optimism surrounding Germany’s Ifo survey could potentially push EUR/GBP towards the 0.8735 high recorded in April. This development aligns with weak UK economic activity and underscores contrasting regional dynamics—an ECB expressing confidence in economic resilience and potential business investment growth, against a UK economy constrained by fiscal challenges. Reports suggest that the UK budget announcement may take place on 5 November.
While we previously forecasted EUR/GBP approaching 0.88 by next year, the ECB’s less dovish tone could expedite this trajectory. Critical factors driving this shift will include hard data and inflation figures from the eurozone. Our eurozone team continues to see potential for a September ECB rate cut—a possibility the market currently undervalues at just 25%.
