Euro remains bid and advances to new 2023 highs near 1.1280

• Euro records a new YTD high near 1.1280 against the US Dollar.
• Stocks in Europe open Tuesday’s session in a mixed note.
• EUR/USD extends the rally to the vicinity of 1.1280 on Tuesday.
• US Retail Sales take centre stage across the pond later in the session.

The Euro (EUR) continues to gain ground against the U.S. dollar (USD), pushing EUR/USD to its highest level since February 2022 near 1.1280 on Tuesday. The greenback is weakening further against the euro as US yields retreat across the yield curve. German 10-year bund yields are also pulling back.  

The possibility that the Federal Reserve may be nearing the end of its tightening cycle continues to weigh on the dollar. This view has gained momentum recently with signs of cooling U.S. consumer prices and downward trending producer prices.

Currently, the market has largely priced in the expected 25 basis point rate hikes from both the European Central Bank (ECB) and the Federal Reserve. However, there is still debate about their future policy moves as central banks work to normalize amid concerns of an economic slowdown in both Europe and the U.S.   

Around the ECB, board member Klaas Knot suggested core inflation has plateaued while he did not rule out hikes beyond July.

With no major euro area data due, all attention will likely be on the U.S. retail sales report, industrial production, business inventories, NAHB housing index, and TIC flows.

Daily digest market movers: Euro poised to further advances

• The EUR picks up extra impulse against the USD on Tuesday.
• The ECB Knot leaves the door open to extra rate raises beyond July.
• The USD Index revisits the area of 2023 lows near 99.50.
• Investors remain sceptical over further tightening in the next month.
• US, German yields extend the corrective decline.

Technical Analysis: Euro now looks at 1.1300

The ongoing price action in EUR/USD hints at the idea that further gains might be in store in the short-term horizon.

The pair printed a new 2023 high at 1.1275 on July 18. Once this level is cleared, there are no resistance levels of significance until the 2022 peak of 1.1495 recorded on February 10.

On the downside, the 1.1000 region emerges as a psychological support seconded by provisional support at the 55-day and 100-day SMAs at 1.0890 and 1.0865, respectively, ahead of the July low of 1.0833 (July 6). The breakdown of this region should meet the next contention area at the key 200-day SMA at 1.0666 prior to the May low of 1.0635 (May 31). South from here emerges the March low of 1.0516 (March 15) before the 2023 low of 1.0481 (January 6).

Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 200-day SMA.

Of note, however, is that the current pair’s overbought condition (as per the daily RSI above 75) carries the potential to spark a technical correction in the short-term horizon.