Dollar analysis: EUR/USD outlook unaffected by US credit rating downgrade

• EUR/USD outlook still somewhat bearish despite Fitch downgrade
• Dollar finds haven demand
• EUR/USD technical analysis point lower

The big news from last night was the unexpected announcement from Fitch downgrading US credit rating which caused US index futures and global equity markets to drop. But the reaction in FX has been muted with the dollar retaining its recent bullish bias against most currencies, except the likes of the yen which many consider to be more of a haven currency than the US dollar. The day is still young though, and once US investors join the fray later, we might see a more significant response. Investors are also keeping an eye on key US data and company earnings this week. For now, the EUR/USD outlook remains mildly bearish in light of the dollar’s overall positive trend over the past couple of weeks or so.

As well as the credit downgrade, the US dollar was able to shrug off another poor ISM manufacturing PMI survey and data showing weaker jobs openings on Tuesday, as the Dollar Index eked out a small gain to extend its two-and-a-half-week rally above 102.00.

Dollar analysis: Key employment data to come

The focus will remain on the jobs market this week, with the release of ADP private payrolls report later, jobless claims and the employment component of the ISM services PMI on Thursday, and then – the big one – the official nonfarm payrolls report on Friday. In terms of company earnings, results from tech giants Apple and Amazon will be the big ones on Thursday.  

The Fed has made it quite clear that US monetary policy is now restrict enough and that the next policy decision in September would be entirely data dependent. Until then, we will have two more inflation and a couple of jobs reports to consider. While the focus is clearly on inflation as employment is still very strong, any potential weakness in jobs data could cement expectations of a policy hold. But another surprisingly strong employment report would keep the threat of further Fed hikes alive. So, the dollar could move quite sharply this week, as the Fed is now watching data very closely in determining its next move on monetary policy.

EUR/USD outlook: Technical analysis point lower

Source: TradingView.com

The EUR/USD has been on the backfoot so far this week along with the other major currency pairs, thanks largely to the strength of the dollar than weakness from the euro.

After that big sell-off from last Thursday, the onus remains on the bulls to show up again with the dollar also rising against other major currencies. The EUR/USD bulls have failed to defend some key levels earlier last week and that run has continued with the loss of 1.10 handle on Tuesday.

The key resistance area to watch remains around 1.1030 to 1.1050, which was previously support. Only if this area is reclaimed, or we see a clear bullish reversal pattern emerge at lower levels first, would the technical bis turn bullish again on this pair.

For now, though, the EUR/USD may well continue lower and drop to test liquidity below last week’s low at 1.0943 next.

The next level of key support is around 1.0900, which was the base of the prior rally.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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