Euro-Dollar Rate's Downward Bias Intact Say Analysts

Image © Pound Sterling Live

The Euro to Dollar exchange rate's downward bias is tipped by analysts to remain intact ahead of next week's important U.S. inflation release.

"EUR/USD has been unable to retest the key $1.0800 barrier and retreated," says Ruta Prieskienyte, FX Strategist at Convera. "The pair continues to struggle to get past the 50-day SMA at $1.0792".

The Convera analyst says the European Central Bank's expected June rate cut is weighing, "there is an overarching downward bias in EUR/USD over the medium term".

"The local technical picture points to a slight bearish bias as EURUSD is trading below its 200- and 50-day moving averages," says Alex Kuptsikevich, senior market analyst at FXPro.

The Euro recovered composure last week following a double-header of Dollar-negative developments: 1) the Federal Reserve's May policy update showed the Fed to be relatively relaxed about the inflation pick-up in the first quarter and, 2) the non-farm payroll report for April was softer than expected.

The Euro-Dollar rallied 0.63% in the week, making for a third consecutive weekly advance that speaks of a somewhat improved near-term setup, even if the bigger picture still looks to be a soft one.

"For now, the euro is enjoying the improved near-term outlook. 1-week EUR/USD risk reversal skew has flipped in favour of calls for the first time in 2-months, as traders are growing increasingly euro bullish over the near-term horizon," says Prieskienyte.

Above: EUR/USD failed to clear the 50-day moving average. Track GBP/USD with your own custom rate alerts. Set Up Here

Kit Juckes, a strategist at Société Générale, says a move above 1.08 could open the door to further gains.

"Tactically, I think a fresh break above 1.08 is worth chasing," he says, noting that the weight of negative sentiment about Europe, the weight of poisons and the valuation of the euro have provided support.

But such a move requires a catalyst, and Juckes looks to next week's U.S. CPI data. An undershoot in the data could send the Euro sharply higher. For now, "we'll respect ranges and try to avoid being chopped up by the random nature of the news and the price action," says Juckes.

FxPro's Kuptsikevich says "the bulls" have not given up trying to break through this resistance, making attempts on Friday and Monday... market finds the euro attractive at current price levels."

For now, sentiment on the Euro-Dollar is "very balanced" according to Kuptsikevich, "and this is a good time to watch what the next move will be. A sharp change, by 1% or so, in either direction could signal the start of a relatively long trend."

In terms of levels, EURUSD overcoming the 1.0850 level opens prospects for a rise to the 1.1050 area with the potential for further upside, according to FxPro.

A failure under 1.0650 could force buyers to regroup in the 1.05 area and possibly trigger a further downward trend.