EUR/USD: Many sources of relief for the euro

Amid a climate generally favorable to risk appetite - driven by a geopolitical lull - the euro managed to lock in gains made since last week's Federal Reserve policy meeting, an event accompanied by a rather vague message.

"Despite the reaffirmed commitment to fighting inflation, markets interpreted this lack of action as a sign of a dovish stance. We are projecting a hike in December, but the probability of intervention in September has clearly risen," comments Paolo Zanghieri, Senior Economist at Generali Investments.

On the geopolitical front, the easing of tensions was palpable in crude oil prices, which retreated significantly - dropping nearly 10% to below $80 a barrel for WTI, the Texas benchmark. On Saturday, 1 August, President Donald Trump stated that the United States and Israel had agreed to suspend planned new strikes against Iran at the request of Tehran and other regional nations, provided a deal could be reached quickly.

On Friday, currency traders reviewed revised U.S. consumer confidence data (University of Michigan index), which showed a slight rise to 55.1. Additionally, investors examined preliminary Eurozone consumer price data for July. Excluding food, energy, alcohol, and tobacco, prices rose by 2.4% year-on-year - surpassing both the consensus forecast (2.3%) and the final figures for June (2.3%). "Overall, we believe that inflationary pressures are currently driven primarily by energy prices, while indirect effects remain limited for the time being. However, given the volatility of energy markets, continued vigilance on the part of the ECB remains necessary. We therefore continue to anticipate an ECB hike in its deposit rate to 2.50% in September," explains Ulrike Kastens, an economist at DWS.

In the immediate term, traders have just received the final Eurozone manufacturing PMI data for July. The reading came in at 51.8, very close to the initial estimate of 52.

"While supply bottlenecks and energy-related inflationary pressures have eased slightly compared to June, supply chain disruptions and high energy prices persist, fueled by tensions in the Middle East. This situation threatens to curb production and weigh on demand in the coming months," notes Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

Right now, the EUR/USD is trading at $1.15202.

KEY TECHNICAL FACTORS
We are suspending our short positions on the benchmark currency pair - held above the $1.1408 level - pending a confluence of new technical signals.

MEDIUM-TERM FORECAST
Based on the key technical factors mentioned, our outlook for the EUR/USD is neutral in the medium term.

We will maintain this neutral stance as long as the EUR/USD remains positioned between the support level at $1.1460 and the resistance level at $1.1588.