EUR/USD forecast: At the mercy of USD price dynamics, focus remains on trade developments

  • The USD remains well supported amid growing optimism on tariffs deal.
  • Surging US bond yields further underpin the USD and exerted pressure.

The EUR/USD pair extended its recent pullback from the 1.1175-80 supply zone and remained under some selling pressure for the fifth consecutive session on Friday. The recent US Dollar bullish run to multi-week highs turned out to be one of the key factors behind the pair's downfall to over three-week lows, closer to the key 1.10 psychological mark. Against the backdrop of growing US-China trade optimism, a strong rally in the US Treasury bond yields was seen extending solid support to the Greenback.
It is worth mentioning that officials from both sides said late last week that China and the United States have agreed to roll back tariffs on each others' goods in a "phase one" trade deal if it is completed. However, there were some conflicting reports, suggesting that the subject of rolling back tariffs faced fierce internal opposition in the White House. This was followed by the US President Donald Trump's subsequent denial, through was largely offset by the fact that he did not completely rule out a deal and did little to dampen prospects of a partial agreement.
The pair remained on the defensive at the start of a new trading week and remains at the mercy of USD price dynamics/any incoming trade-related headlines amid empty macroeconomic docket on Monday. Moving ahead, this week's other US economic releases, including the latest consumer inflation figures and monthly retail sales data, along with the Fed Chair Jerome Powell's testimony will now be looked upon for a fresh directional impetus.

Short-term technical outlook

From a technical perspective, last week's fall below the 1.1075 region already confirmed a near-term bearish double-top pattern on the daily chart. Sustained weakness below the 1.10 handle will further reinforce the negative outlook and accelerate the slide further towards the 1.0965-60 horizontal support en-route the 1.0925 region.
On the flip side, any attempted recovery back above the 1.1045-50 region might now confront some fresh supply near the double-top neckline support breakpoint, which is closely followed by the 1.1100 round-figure mark. Momentum beyond the mentioned hurdles, leading to a subsequent strength beyond 100-day SMA, might trigger a short-covering move and lift the pair back towards the 1.1165-70 heavy supply zone.


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