EUR/USD looks like it wants to rally despite downside risks

Aug 1 (Reuters) – EUR/USD has struck a seven-session high, and despite some downside risks, interest rates and technical factors provide an upside bias.

Global PMI data indicate risks for slower economic growth are increasing, which would certainly weigh on eurozone exports. With this, Eurozone interest rates have been trending down as investors rein in their expectations for the terminal ECB rate.

EUR/USD is reacting bullishly, however, as investors are likely more focused on the possibility of the Fed pivoting to a less aggressive rate hiking path which is helping to weigh down the dollar.

Meanwhile, EUR/USD technicals highlight upside potential. Dips below the 10-DMA are becoming more short-lived, while daily and monthly RSIs are rising. Reinforcing these bullish signals is EUR/USD’s ongoing consolidation of its gain off the July 14 daily low. The consolidation phase should resolve with new highs being set.

A sustained thrust above the 38.2% Fibo of 1.0787-0.9952 and the July 21 high would be an indication the corrective phase is complete and the rally is resuming.

EUR/USD longs are then likely to target the 55-DMA and 1.0450/1.0490 resistance.

(Christopher Romano is a Reuters market analyst. The views expressed are his own)