EUR/USD – bearish bias – (1.3400-1.3650).
The euro remains on the defensive against the US dollar in the near-term with EUR/USD falling back towards key pivotal support at just above the 1.3500-level, where the long-term uptrend from the lows from mid-2012 is located.
Building investor expectations that monetary policy between the ECB and Fed will diverge in the coming years is leading to the ongoing widening of yield spreads in favour of the US dollar.
The US dollar has derived modest support from Fed Chair Yellen’s signal that the Fed funds rate could be raised sooner and more rapidly if the labour market continues to strengthen more than the Fed expects, and if inflation rises back towards their 2.0% target.
The release of the latest US CPI report for June will be in focus in the week ahead and is expected to reveal further evidence that inflation pressures are rising. In the euro-zone, the main economic data release in the week ahead will be the latest PMI surveys for July which will signal whether the weak economic recovery remains on track.
The imposition of more biting economic sanctions on Russia has modestly increased downside risks for euro-zone economic growth and the euro.