• The dollar rose as geopolitical tensions escalated in the Middle East.

• The Fed held rates but opened the door to a rate cut in September.

• Eurozone inflation unexpectedly rose in July.

The EUR/USD forecast shows a freefalling pair as the dollar gains amid safe-haven demand. However, the outlook for the dollar is bearish after the Fed signaled a possible rate cut in September. Meanwhile, ECB rate cut bets remained intact despite a spike in inflation.

The dollar rose on Thursday as geopolitical tensions escalated in the Middle East. Tensions increased after a Hamas leader was killed in Iran. This killing diminished hopes for a successful ceasefire agreement that would reduce tensions between Israel and Hamas.

Meanwhile, the dollar fell on Wednesday after a slightly dovish Fed policy meeting. The US central bank held rates but opened the door to a rate cut in September. Powell said that if inflation continued easing in line with expectations, the Fed might be ready to lower borrowing costs in September.

However, he also cautioned that policymakers will keep watching incoming data before the next meeting. Investors are fully pricing in the first cut in September. Moreover, they increased the size of cuts expected this year to 72bps.

Further downward pressure for the dollar came from the ADP jobs report. Notably, private employers hired a smaller-than-expected 122,000 more people. Economists had forecasted 150,000 additional private jobs.

Meanwhile, Eurozone inflation unexpectedly rose in July. The CPI increased by 2.6% after a 2.5% increase in June. Nevertheless, there was little impact on expectations for a September ECB cut. Notably, service inflation eased from 4.1% to 4.0%, a slight relief for policymakers.

EUR/USD key events today

• US unemployment claims
• US ISM manufacturing PMI

EUR/USD technical forecast: Bearish momentum spikes after 30-SMA resistance

On the technical side, the EUR/USD price has suddenly fallen sharply after retesting the 30-SMA resistance. Consequently, the price has dropped well below the SMA, indicating solid bearish momentum. Similarly, the RSI is quickly approaching the oversold region.

Previously, the downtrend was slow and shallow, keeping close to the SMA. Moreover, the RSI made a bullish divergence, indicating weaker bearish momentum. However, the recent surge in momentum could push the price to the 1.0750 key level. At the same time, the RSI might dip into the oversold region.

https://www.forexcrunch.com/blog/2024/08/01/eur-usd-forecast-bears-takeover-amid-risk-off-sentiment/