**EUR/USD Rally Tests Crucial Resistance Zone**
*By Matt Weller, CFA, CMT | Original article published on FOREX.com*
The recent EUR/USD rally has sparked renewed optimism among euro bulls, but the pair now faces a pivotal challenge as it approaches a historically significant resistance area. While short-term momentum has favored the euro, upcoming technical and fundamental hurdles could dictate the next directional move. Investors and traders alike are closely watching price action as the euro attempts to break above key resistance levels.
This article provides a detailed analysis of the current EUR/USD market dynamics, the underlying drivers of the rally, technical indicators to monitor, and key events likely to influence the outlook in the coming days.
**Fundamental Backdrop Supporting Recent Euro Strength**
Several factors have helped support the recent EUR/USD strength. These include:
– **Moderate U.S. Dollar Softness:** The U.S. dollar has pulled back slightly off recent highs, giving room for EUR/USD to recover. The decline in Treasury yields supported this move as investors anticipate slower economic momentum and potential rate adjustments by the Federal Reserve.
– **Improving European Economic Data:** Recent data out of the eurozone has surpassed market expectations, contributing to improved sentiment around the euro. Specifically, stronger-than-anticipated industrial output and improving business and consumer sentiment readings have bolstered the view that the euro area economy may be turning a corner.
– **Central Bank Rhetoric:** While the European Central Bank (ECB) has maintained a cautious tone, some recent signals from ECB policymakers suggest that inflation pressures are easing gradually but not yet subdued completely. This leads some market participants to believe that the ECB may hold off on aggressive rate cuts in the near term. At the same time, expectations for a U.S. rate cut remain elevated, especially with signs of slowing growth in key U.S. economic indicators.
**Technical Analysis: Rising But Hitting Resistance**
The technical landscape for EUR/USD remains constructive in the short term, yet formidable resistance looms overhead, particularly near the 1.0900 psychological level. Let’s explore the technical setup in more detail:
– **Uptrend Structure:** EUR/USD has formed a short-term uptrend over the past few weeks, characterized by higher lows on the daily chart. This structure supports a near-term bullish bias for the pair, while signaling potential continuation if resistance is broken.
– **Key Resistance Zone:** A cluster of resistance levels between 1.0880 and 1.0920 poses the next hurdle for the bulls. This area includes:
– The March swing high near 1.0890
– The 200-day moving average currently approaching 1.0900
– Previous support turned resistance from mid-January
– **Momentum Indicators:**
– The Relative Strength Index (RSI) sits comfortably above 50, reflecting growing bullish momentum. However, it remains below overbought territory, suggesting more room to run before encountering technical exhaustion.
– MACD (Moving Average Convergence Divergence) has crossed into positive territory, further strengthening bull confidence.
– **Support Levels to Watch:**
– Immediate support lies near 1.0750, coinciding with the breakout level from earlier this month
– Additional support sits just below at 1.0650–1.0680, representing the lower boundary of the recent ascending price channel
**Scenarios: What Could Happen Next?**
With the euro now challenging resistance near the 1.0900 area, several different scenarios could play out over the medium term. Each depends on whether bulls can maintain momentum or if sellers reassert control at these elevated levels.
1. **Bullish Breakout Above Resistance:**
– Sustained strength above 1.0900 could confirm a bullish breakout
– If achieved, the next targets may include:
– 1.1000: A psychological level and minor swing high from January
– 1.1070: December highs
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