**EUR/USD Technical Analysis: Impact of Dovish Repricing on the US Dollar**
*Based on the original article by Zsolt-István Vaszary, InvestingLive.com*
The EUR/USD currency pair experienced a decisive bullish shift recently as the market responded to a reassessment of the U.S. Federal Reserve’s policy outlook. The greenback faced broad-based selling pressure amid speculation that the Fed might adopt a more dovish stance sooner than initially expected. This technical outlook for EUR/USD examines recent price movements, macroeconomic drivers, and the broader implications for traders and investors.
Let’s delve deeper into the key dynamics influencing the pair, as well as technical levels to pay attention to in the near term.
## Fundamental Context and Market Sentiment
Recent moves in the EUR/USD were largely driven by developments in U.S. economic data and shifts in market expectations regarding the Federal Reserve’s monetary policy trajectory.
– **Weaker-than-expected U.S. economic data**: A soft ISM services PMI print triggered the recent wave of dollar selling. The ISM Services Index declined more than expected, stirring concerns about the health of the U.S. economy and prompting speculation about a potential deceleration in the Fed’s tightening plan.
– **Yield curve reaction**: Following the ISM report, short and long-term U.S. Treasury yields fell, signaling the market’s anticipation of rate cuts or softer forward guidance from the Fed. This reduction in yields reduced the dollar’s attractiveness relative to other currencies like the euro.
– **Aggressive dovish repricing**: Traders adjusted their rate expectations rapidly. The probability of one or even two rate cuts by the Fed before the end of the year increased, according to CME FedWatch Tool data. Eurozone data has not been stellar, but the significant shift in U.S. projections gave EUR/USD room to climb.
– **Market sentiment**: A broader shift to risk-on sentiment in global markets also worked against the dollar. As equities found renewed interest and commodity prices remained supported, demand for the safe-haven dollar diminished.
## Short-Term EUR/USD Price Action
After weeks of consolidation within a tight range, the EUR/USD broke to the upside, propelled by macroeconomic catalysts and a realignment of speculative positioning in futures and options markets.
– **Range breakout**: Prior to the breakout, EUR/USD remained stuck between 1.0660 and 1.0740. A sudden surge pushed the pair beyond that upper boundary, with prices extending toward the 1.0800 mark in subsequent sessions.
– **Buying momentum**: The buying momentum was primarily reactionary, fueled by short covering and algorithmic trading systems responding to technical signals.
– **Lack of significant euro-side drivers**: While the move seemed strong, it should be noted that the drivers were largely USD-centric. Economic indicators from the euro area have failed to provide significant upside surprises, so the rally has more to do with dollar weakness than euro strength.
## Broader Technical Perspective
Chart analysis provides further insight into the validity and sustainability of the pair’s breakout. Technical indicators suggest short-term bullishness but caution against overconfidence in sustained upside without fundamental support.
### Daily Chart Analysis
– **Resistance levels**: EUR/USD is facing immediate resistance near the 1.0800 level. A successful break and daily close above this mark could open the door to a further push toward 1.0900 and potentially 1.0950, where the 100-day and 200-day moving averages converge.
– **Support levels**: On the downside, initial support is situated near 1.0740, which was previously the top of the consolidation range. Below that, 1.0660 and 1.0600 serve as additional support zones.
– **Moving averages**:
– The 50-day moving average is starting to slope upward, reflecting growing upside momentum.
– The 200-day moving average at the 1.
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