The Euro (EUR) extends its recent gains against the US Dollar (USD), driving the EUR/USD pair to fresh year-to-date peaks around 1.1250 at the beginning of the week. The move, however, seems to have fizzled out somewhat as the Greenback managed to trim part of those losses. In the meantime, the spot keeps the trade in the area of yearly highs well north of 1.1200 on the back of the resumption of the selling pressure around the Greenback, all against the backdrop of diminishing US yields across the curve and steady consensus around another 25 basis points interest-rate hike by the Federal Reserve and the European Central Bank (ECB) later this month.

The possibility that the Fed may be nearing the end of its tightening campaign contributes to the lack of traction in the Greenback. This view has gained momentum recently, as there are indications of cooling US consumer prices and a persistent downward trend in producer prices. Markets have already largely priced in the expected 25 bps rate hike by both the ECB and the Fed. However, there is still much discussion about the potential future actions of these central banks as they work to normalize their monetary policies, particularly with growing concerns about a possible economic slowdown on both sides of the Atlantic. According to the latest CFTC Positioning Report, net longs in EUR dropped to around 140.1K contracts in the week ending on July 11, which is the lowest level seen since mid-March. In the US calendar, the NY Empire State manufacturing gauge will be the sole release on Monday.

The ongoing price action in EUR/USD hints at the idea that further gains might be in store in the short-term horizon. However, the current pair’s overbought condition (as per the daily RSI near 75) leaves the door open to a potential short-term technical correction. The pair printed a new 2023 high at 1248 on July 17. Once this level is cleared, there are no resistance levels of significance until the 2022 peak of 1.1495 recorded on February 10. On the downside, the 1.1000 region emerges as a psychological support seconded by provisional support at the 55-day and 100-day Simple Moving Averages (SMAs) at 1.0886 and 1.0859, respectively, ahead of the July 6 low of 1.0833. The breakdown of this region should meet the next contention area at the key 200-day SMA at 1.0658 prior to the May low of 1.0635 (May 31). South from here emerges the March 15 low of 1.0516 before the 2023 low of 1.0481 seen on January 6. Furthermore, the constructive view of EUR/USD appears unchanged as long as the pair trades above the key 200-day SMA. The current bullish view in the pair is also supported by the uptrend in open interest, which saw an increase of more than 1K contracts on Friday, according to flash data from CME Group.