The EUR/USD has experienced a slight pullback following a data-driven rally on Wednesday, as profit-taking has taken place. However, with key resistance levels broken, the path of least resistance appears to be to the upside.
In the short term, potential support levels to watch include the 1.0850-1.0860 area, which previously failed to offer resistance during Wednesday’s rally. If we see a bounce around this area, it could indicate further upside potential. Additionally, the key support level to watch is now between 1.0800 to 1.0825, marking the breakout point for the week.
Looking ahead, the next bullish target is likely to be around 1.0900, with the 1.10 handle being a key level to watch thereafter.
As for the dollar, market expectations have shifted to anticipate two rate cuts this year, with the possibility of three cuts if weaker US data trends continue. Recent data releases have shown signs of a cooling US economy, leading to dollar selling and potential further weakness in the near term.
Overall, the EUR/USD is expected to find buyers on dips and move towards the 1.10 handle. Recent weakness in US data, including disappointing CPI prints and retail sales figures, suggest that the US economic recovery may be slowing, leading to reduced inflation pressures and a potential shift in monetary policy. The Fed’s tapering of its balance sheet runoff has also been a bearish factor for the dollar.