EURUSD:
The single currency remains under pressure as investors price in a higher premium for the US dollar amid resilient US macro data and the upcoming FOMC decision. US Q2 GDP data confirmed that growth rates remain above trend, while the euro area is experiencing stagnation in industrial output and declining consumer sentiment. In addition, the yield spread between 10-year US Treasuries and German Bunds has widened to 200 basis points – the highest since April, increasing capital outflows into dollar assets.
Additional pressure comes from energy prices: gas in Europe remains below €30/MWh, reducing export revenues of the largest producers and shifting the trade balance toward a deficit. At the same time, import prices in Germany have fallen by 9% y/y, amplifying deflationary risks and arguments in favor of a dovish tone from the ECB.
Overall, the divergence in economic cycles (hawkish Fed vs. cautious ECB) and negative real yields in the euro area set a fundamentally bearish backdrop for the pair. Risks to the scenario: unexpectedly dovish rhetoric from the Fed or strong euro area PMI figures, which could temporarily strengthen the EUR.
Trade recommendation: SELL 1.1440, SL 1.1460, TP 1.1340
Origin: FreshForex
