Title: EUR/USD Forecast: Sharp Rebound Raises Questions on Trend Direction
Source: Originally published by Matt Weller, FOREX.com
The EUR/USD currency pair experienced a sharp rebound recently, capturing the attention of traders and analysts alike. After dipping to key support levels, the euro swiftly rallied against the U.S. dollar, raising questions about whether this marks a short-term correction or the early stages of a sustained bullish trend. In this detailed forecast, we’ll take a deeper look at the factors influencing this movement, key technical levels to watch, and potential scenarios in the coming days and weeks.
Credit: Content derived and adapted from analysis by Matt Weller, FOREX.com
Background: Recent Price Moves in EUR/USD
The euro has had a volatile year against the U.S. dollar, impacted by shifting expectations around central bank policy, macroeconomic data, and global risk sentiment. The recent movement saw the EUR/USD pair bounce sharply higher after finding support near 1.0700, climbing back toward the 1.0850 region. This rally has raised the possibility of a trend reversal or a continuation of the broader consolidation pattern forming since mid-2023.
Key Drivers of the Recent Rebound
Several fundamental and technical factors fueled the euro’s recent resurgence:
• Fed Policy Speculation:
– A perceived softening in recent U.S. data has led some market participants to reconsider the timing of further interest rate hikes by the Federal Reserve.
– With inflation demonstrating signs of moderation and labor market indicators stabilizing, traders are beginning to price in more dovish Fed expectations moving into the second half of the year.
– This reduced demand for the U.S. dollar as yields weakened, supporting EUR/USD.
• ECB Guidance and Eurozone Stability:
– European Central Bank officials signaled continued readiness to raise rates if inflation pressures persist in the Eurozone.
– Hawkish tones from ECB policymakers contrasted with the more cautious stance in the U.S., narrowing interest rate differentials and aiding the euro.
– Stabilizing energy prices and improved consumer confidence indicators have further lifted sentiment toward the euro.
• Technical Support and Oversold Levels:
– On the technical side, EUR/USD found robust support near the 1.0700 level, which aligned with both horizontal support from earlier price structure and the 200-day moving average.
– Price action dynamics suggested the pair was oversold in the near term, triggering a rebound as traders took profits on short positions.
Analyzing the Technical Landscape
Technical analysis provides crucial context in understanding where the pair may be headed next. A review of daily and multi-timeframe charts reveals mixed signals, pointing to both bullish and bearish possibilities depending on the price action around key levels.
Support and Resistance Levels:
• Key support:
– 1.0700: Long-term support, coinciding with the 200-day moving average and previous swing lows
– 1.0635: Next line of support if bearish momentum resumes
• Key resistance:
– 1.0850: Recent high and short-term resistance
– 1.0930-1.0950 zone: Contains the 50-day and 100-day moving averages
– 1.1000: Psychological round number and resistance zone from prior price peaks
Potential Technical Patterns:
• Bullish possibilities:
– The recent move could represent a V-shaped reversal, returning the pair into a medium-term bullish trend.
– If EUR/USD sustains momentum above the 1.0850 area, it may try to break further toward the 1.0930 and even 1.1000 resistance.
• Bearish risks:
– Failure to close above 1.0850 may suggest the bounce was corrective in nature.
– Bearish traders may re-enter the market on signs of weakness around resistance levels, particularly if the pair forms a lower high
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