Is the EUR/USD a buy in July after weak Eurozone inflation data?

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jun 30, 2021
  • The EUR/USD price declined slightly after the Eurozone inflation declined.
  • The headline CPI declined from 2% in May to 1.9% in June.
  • The pair will next react to the latest US non-farm payrolls data.

The EUR/USD pair declined to 1.1890, even after the relatively positive European economic data. The pair declined to 1.1878, which was about 0.80% lower than this week’s high of 1.1976.

EUR/USD
EUR/USD price action

Eurozone economic recovery

The Eurozone economy is rebounding as more countries ramp up their vaccination process. According to the European Commission, the overall sentiment rose to 117.9 in June, the second-highest level on record. 

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And today, data showed that the German unemployment rate remained intact at 5.9%. That happened as the country’s unemployment change declined by more than 38,000 in June after falling by 19k in the previous month. In total, the country has more than 2.691 million unemployed people. As a result, the economy is about to get back to the pre-pandemic levels.

The EUR/USD is also reacting to the latest Eurozone consumer price index (CPI) data. According to Eurostat, the bloc’s headline consumer price index (CPI) rose by 0.3% in June. This increase led to a year-on-year increase of 1.9%, which was slightly below the previous month’s 2.0%. 

Further, the core CPI rose by 0.3% while the harmonised inflation rose by 0.9%. These numbers show that the Eurozone inflation has started cooling down as the recovery gains steam.

The EUR/USD is also falling after the recent strong economic data from the United States. On Tuesday, data showed that the Case Shiller house index rose by more than 14% in April, the highest level in more than 30 years. This is further evidence that the housing sector is getting significantly tighter as demand outweigh supply. 

The biggest catalyst for the pair will be the latest US non-farm payrolls (NFP) that will come out on Friday. Analysts expect the data to show that the economy added more than 600k jobs in June while the unemployment rate declined to 5.6%.

EUR/USD technical forecast

EUR/USD
EUR/USD technical chart

The EUR/USD declined by more than 2.9% in June making it the worst month since March. On the four-hour chart, the pair has dropped below the 61.8% Fibonacci retracement level. It has also moved below the 25-day and 50-day exponential moving averages (EMA) while the MACD has moved below the neutral line. 

Therefore, the pair will likely keep falling as investors target the 78.6% Fibonacci retracement level at 1.1822. However, this prediction will be invalidated if it manages to move above 1.1975. In a note, analysts at ING said:

“Indeed, we suspect investors may take advantage of any EUR/USD dip to the 1.1835/1850 area to position for a higher EUR/USD in late Summer.”

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