Original article by David Solin, hosted on FOREX.com. Below is a rewritten and expanded version of the article “Euro Technical Forecast: EUR/USD Falls, Threatens Reversal into the Fed,” retaining the analytical content and adding further context and elaboration.
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# EUR/USD Technical Outlook: Bearish Momentum Accelerates Ahead of the Fed Decision
The euro has faced a sharp retracement against the US dollar in recent sessions, with the EUR/USD pair tumbling from recent highs. This drop, driven by a mixture of weaker Eurozone data and renewed market strength in the USD, comes just ahead of a critical Federal Reserve rate announcement. The pair, which topped last week near 1.0916, has since slipped below important support levels, raising the risk of a broader trend reversal.
This technical breakdown increases the likelihood that the pair may continue falling if bullish catalysts do not reassert themselves. Market participants are now focused on the Federal Open Market Committee’s (FOMC) upcoming policy guidance, particularly with regards to the path of interest rates. With that in mind, it’s important to explore the current technical landscape of the EUR/USD and how the macroeconomic backdrop feeds into short- and medium-term price expectations.
## Recent Decline and Emerging Downtrend
Over the past week, EUR/USD has experienced a steady descent from its near-term peak. A rally that had built for much of May found resistance near 1.0916—a multi-week high—before facing rejection as buying momentum faded.
Several symptoms of technical weakness have since emerged:
– EUR/USD has broken below both the 50-day and 200-day moving averages.
– The pair has slipped under the critical support zone near 1.0800.
– A series of lower highs and lower lows is forming, suggesting the beginning phases of a bearish trend.
The decline also coincided with a firm rebound in the US dollar index (DXY), which has picked up strength due to resilient US economic data and relatively hawkish Fed commentary. Traders have started to question the extent and timing of potential rate cuts from the European Central Bank (ECB), whereas expectations around the Federal Reserve are increasingly cautious.
## Key Technical Levels to Watch
As the euro loses ground against the dollar, several important technical price levels merit close monitoring.
### Resistance Zones
– 1.0860–1.0915: The zone that capped recent EUR/USD rallies, representing the top of the recent range and a key Fibonacci retracement area.
– 1.0800: Previously established as a psychological and technical support area, now flipped into near-term resistance following the breakdown.
– 1.1000: A major psychological resistance that also coincides with the April high. This level will likely remain unreachable unless a material shift happens in USD sentiment.
### Support Areas
– 1.0700: A notable support pivot where the March and April consolidation occurred.
– 1.0635–1.0650: An area of clustered daily lows. Breach of this area would mark a bearish signal, opening the door to a wider retracement toward the 2024 lows.
– 1.0560: The year’s lowest close marks the most important support level for bears to challenge.
These levels outline the broader consolidation channel that EUR/USD has traded within over the last several months. The current downside movement puts pressure on the lower boundary of this range, and failure to hold above key structural supports could shift the market tone considerably more bearish.
## Momentum Indicators and Bearish Divergences
Momentum indicators are confirming the bearish shift. The Relative Strength Index (RSI) on the daily chart has slipped below the midpoint of 50, indicating strengthening bearish control. Shorter-term RSI time frames, such as the 4-hour and 1-hour charts, reveal oversold conditions, which suggests a short-term bounce might be possible. However, such a move would likely be corrective within a larger bearish trend unless substantial buying volume returns.
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