Original Article by Fiona Cincotta (CityIndex)
Rewritten and Expanded by AI
EUR/USD Technical Forecast: Uptrend Break Signals Looming Correction
The euro (EUR) recently broke below a long-standing uptrend against the US dollar (USD), suggesting potential weakness ahead in the EUR/USD currency pair. The technical landscape has shifted significantly, raising questions about the sustainability of the bullish momentum that has underpinned the pair since early summer. This article covers the key technical developments, market catalysts, and potential scenarios traders should monitor going forward as the EUR/USD pair faces a possible correction.
Key Takeaways
– The EUR/USD pair has broken below a multi-month rising trendline.
– Bearish technical signals are mounting as the US dollar regains strength.
– A correction may take the currency pair lower over the short to medium term.
– Traders are keeping a close eye on upcoming macroeconomic data and central bank outlooks.
Break of the EUR/USD Uptrend
After a steady ascent that began in May and continued through the summer months, EUR/USD has broken down through a key ascending trendline. This uptrend had provided strong support for the pair for months, underpinned by expectations of tightening European Central Bank (ECB) policy and softening US economic momentum. However, the tide appears to be turning.
The final break below the uptrend line emerged last week when the pair dropped beneath the 1.0640 level. The move coincided with a resurgence in the US dollar, buoyed by hawkish commentary from Federal Reserve officials who signaled that interest rates may remain elevated for longer than previously expected.
Technical Perspective on EUR/USD
From a technical analysis standpoint, the picture for EUR/USD is rapidly becoming more bearish.
– The break of the supportive rising trendline signals a change in market sentiment.
– The Relative Strength Index (RSI) has dropped below the 50 level, suggesting waning bullish momentum.
– The pair has declined below both the 50-day and 100-day moving averages, key technical indicators used by traders to assess trend direction.
– Price action has turned decisively negative, with lower highs and lower lows forming on the daily chart.
Support and Resistance Levels to Watch
As bearish momentum strengthens, attention turns toward nearby support and resistance levels as key inflection points for price action.
Immediate Support:
– 1.0570: A short-term support area tested during last Friday’s session. A break here could open the door to additional declines.
– 1.0500: A psychological round-number level and historically significant pivot zone that may attract buying interest.
– 1.0430: The March 2023 low, which could serve as a more meaningful support level if selling intensifies.
Resistance Levels:
– 1.0640: Former support, now turned resistance following the trendline and moving average break.
– 1.0700: Round-number resistance level and a previous swing high.
– 1.0775: A key level from August, serving as a potential ceiling for any attempted recovery rally.
These levels will be critical in determining whether the correction continues or if the pair stabilizes and attempts to reverse once again.
US Dollar Strength Reasserts Itself
The weakness in EUR/USD cannot be analyzed in isolation. One of the most important underlying themes is the strength of the US dollar in recent weeks.
There are several reasons for the greenback’s rebound:
– The Federal Reserve has adopted a firm tone on interest rates, with Chair Jerome Powell and other members signaling a commitment to keeping rates “higher for longer” in the face of persistent inflation.
– US Treasury yields have risen aggressively, making dollar-denominated assets more attractive to investors.
– Risk aversion has crept into global financial markets, increasing demand for the US dollar as a safe-haven currency.
With these tailwinds behind the dollar, it becomes increasingly difficult for the euro to maintain its bullish bias without a clear shift in economic fundamentals or central bank
Read more on EUR/USD trading.