**EUR/USD: Support Maintained but Momentum Appears to Be Weakening**
*Adapted from an analysis by Fawad Razaqzada, Investing.com*
The euro remains in a moderately defensive position against the U.S. dollar as technical indicators point to the fading momentum of the bullish correction, even though the currency pair is still holding above a key zone of support. This technical behavior is unfolding after a recent rally that took EUR/USD up from late April lows, fueled by a combination of dollar weakness and a narrowing of the interest rate gap between the Federal Reserve and the European Central Bank.
While this short-term support is keeping the pair afloat, increasing evidence suggests that the bullish pressure may be losing steam, and further upside may require a significant change in market sentiment or macroeconomic data. The strength of economic data from both the euro area and the U.S. remains a critical variable in projecting the direction of the pair over the coming weeks.
This revised analysis takes a closer look at EUR/USD, examining macro drivers, technical price levels, and near-term market expectations.
Economic and Policy Backdrop
The euro-dollar pair is often guided by relative monetary policy expectations between the ECB and the Federal Reserve, inflationary developments, and macroeconomic performance within both economies.
Recent economic and policy developments include:
– The ECB remains committed to maintaining a cautious approach as Eurozone inflation shows persistent weaknesses and growth is fragile. Despite this, some policymakers have started to float the idea of a possible rate cut sometime this year due to ongoing economic stagnation.
– U.S. economic resilience has supported the dollar lately, but some softness in employment figures and consumer data has led analysts to believe that the Fed may be near a peak in its tightening cycle.
– Both central banks are now at or very near their peak rates, and traders are beginning to price in the timing of future cuts rather than further hikes.
– The yield differential between the U.S. and Germany narrowed slightly in May, offering some support to EUR/USD as the appeal of the dollar waned modestly.
– Market sentiment turned more risk-on in early May, which typically benefits the euro considering the currency tends to appreciate during periods of increased risk appetite.
These factors contributed to the recovery seen in EUR/USD after it bottomed near 1.0600 in late April. However, the recovery has encountered resistance as technical traders eye fading momentum signals.
Technical Analysis: EUR/USD at a Crossroads
From a technical standpoint, the EUR/USD pair has staged a mild rebound in recent sessions but now appears to be encountering headwinds.
Key technical observations include:
– The pair has been trading within a rising wedge pattern on the 4-hour and daily charts, which is typically considered a bearish formation if confirmed with a breakdown.
– Support around the 1.0800–1.0815 area has held up well in recent sessions. This zone previously offered resistance, and price has bounced from this level several times, reinforcing its significance.
– On the upside, resistance can be observed near 1.0880 and 1.0900, where several prior swing highs and technical indicators converge.
– The relative strength index (RSI) on the daily chart appears to be rolling over from the 60 level, suggesting that bullish momentum may be slowing.
– Volume during the recent rallies has not been particularly strong, another indication that the move higher was not underpinned by strong conviction.
– A possible divergence is emerging in momentum indicators like the MACD (Moving Average Convergence Divergence), which shows a flattening histogram even as prices attempt to push higher.
Together, these technical factors suggest that bulls may need stronger fundamentals or a significant breakout above near-term resistance to sustain further gains. If the price fails to sustain above 1.0800, a return to April’s lows cannot be ruled out.
Scenario Outlook: Bearish and Bullish Triggers
Given the current price structure and macroeconomic environment, both bullish and bearish scenarios could
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