Title: EUR/USD and GBP/USD: Momentum Indicators Point to Short-Term Reversal Potential
Source: Forex.com News and Analysis
Original Author: Matt Weller, CFA, CMT
The foreign exchange market has been shaped by a combination of macroeconomic data, central bank policy speculation, and technical signals, leading to notable shifts in key currency pairs like EUR/USD and GBP/USD. As of the latest analysis by Matt Weller, CFA, CMT, at Forex.com, momentum indicators such as the Relative Strength Index (RSI) and MACD are suggesting there could be short-term reversals ahead in both euro and British pound currency pairs against the US dollar.
In this detailed breakdown, we look at the recent technical setups and fundamental drivers affecting the EUR/USD and GBP/USD currency pairs, the implications of momentum divergences, and what traders should monitor for potential trading opportunities in the short term.
EUR/USD: Bullish Momentum Fading
The EUR/USD currency pair saw strong upside movement recently but faces potential short-term downside risks due to weakening bullish momentum.
Key Highlights:
– The euro climbed steadily against the US dollar for several consecutive trading sessions, rallying from recent lows due to broader US dollar softness and improving eurozone sentiment.
– Despite the upward trend, momentum indicators suggest the rally may be losing steam.
– The daily RSI indicator failed to confirm new highs in price action, creating a bearish divergence that often precedes a pullback.
– Similarly, the MACD histogram is beginning to roll over on the daily chart, further signaling decreasing bullish pressure.
Technical Analysis:
– Resistance is seen around the 1.0910 to 1.0925 region, where prior swing highs align with declining buying momentum.
– Support resides near the 50-day moving average, currently around 1.0815, followed by heavier support at the psychological 1.0800 level.
– A daily close below this support zone could indicate a deeper retracement to test levels near 1.0750.
Near-Term Outlook:
– Traders should watch for confirmation of a short-term top via bearish crossover in MACD and weakening of RSI below the neutral 50-point.
– Fundamental catalysts include upcoming eurozone inflation data and FOMC member speeches, which may influence EUR/USD trajectory.
– If the short-term bearish setup materializes, the pair could retrace some of its recent gains before reassessing direction based on further economic signals.
GBP/USD: Overbought Conditions Suggest a Pause
The GBP/USD pair has also enjoyed a robust rally, driven by broader dollar weakness and stabilizing UK data. Like the euro, however, the pound may soon face consolidation or limited correction as key momentum metrics signal overbought conditions.
Key Highlights:
– Pound sterling surged over the past sessions, rising above key resistance levels and reaching multi-week highs.
– RSI has pushed into overbought territory above 70, suggesting that the current upside run could be unsustainable without a fresh catalyst.
– MACD lines on the daily chart are flattening, signaling slowing upside momentum and setting the stage for possible downside movement.
Technical Zones to Watch:
– The critical resistance area now lies near 1.2775, a level that aligns with February’s highs and which may cap further gains unless momentum renews.
– Short-term support is found near the 1.2625 area, a region where previous breakouts occurred and where buyers may return.
– Additional downside protection exists at 1.2540, near a rising trendline and former consolidation range.
Market Context:
– Despite recent GBP strength, traders must consider the shifting expectations around Bank of England’s interest rate policy.
– Any dovish commentary from BoE officials or weaker UK macro data could trigger a correction.
– Moreover, the market remains sensitive to US data surprises, particularly inflation and employment figures, which could influence dollar dynamics.
Possible Scenarios:
– A sideways consolidation above 1.2600 could allow GBP/USD to digest recent gains before mounting another
Read more on EUR/USD trading.