EUR/USD Forecast: Sharp Fall After Initial US-EU Trade Optimism

• The EUR/USD forecast shows a sudden decline in the euro.

• The new trade deal leaves the EU with a 15% tariff.

• Traders are preparing for the FOMC meeting and the NFP report.

The EUR/USD forecast shows a sudden decline in the euro after a trade deal between the US and the European Union. The initial relief has faded, and traders believe the trade deal was not the best possible outcome. Meanwhile, market participants are gearing up for the FOMC meeting and US employment figures this week. 

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The US has signed a trade deal with the EU, finally easing concerns about a 30% tariff set to take effect next month. Moreover, the deal came at the right time since the August 1 deadline is approaching. However, it still left the EU with a 15% tariff. Initially, top officials were going for a zero-tariff agreement. Therefore, the outcome was still not the best. As a result, the euro collapsed on Monday.

“The deal’s investment provision will draw capital flows out of Europe, strengthening the dollar overall against the euro,” said Shoki Omori, chief desk strategist at Mizuho Securities.

“Taken together, weaker relative growth prospects and a deteriorating balance of payments argue for a gradual depreciation of EUR/USD once the initial relief fades, notwithstanding the overnight uptick,” he said.

Meanwhile, traders are preparing for a packed week with the FOMC policy meeting and the US nonfarm payrolls report.

EUR/USD key events today

Market participants do not expect any key releases from the US or the Eurozone. Therefore, focus will remain on the recent trade deal.

EUR/USD technical forecast: Bearish momentum surges past the 1.1701 level

On the technical side, the EUR/USD price has collapsed and broken below the 30-SMA and the 1.1701 key support level. At the same time, the RSI has broken below 50, showing a shift in sentiment to bearish. 

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Initially, the price was trading above the SMA and making higher highs and lows. At the same time, bulls were eyeing the 1.1800 key resistance. However, they were unable to get to the level as bears suddenly gained enough momentum to push below the 30-SMA. 

With bears in the lead, the price might soon start making lower highs and lows. It might pull back to retest the 1.1701 level before dropping to retest the 1.1600 support. However, this will only happen if the price closes below 1.1701. Otherwise, bulls might return to challenge the 1.1800 key resistance.

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