EUR/USD Forecast: Bulls need to wait for move beyond 50% Fibo./50-DMA confluence

The EUR/USD pair faced rejection near the 50-day SMA on Wednesday and retreated nearly 100 pips from its highest level since April 25 touched the previous day. The US dollar made a solid comeback and snapped a two-day losing streak to a nearly one-month low amid concerns about softening global economic growth. Investors remain worried that a more aggressive move by major central banks to constrain inflation and the Russia-Ukraine war could pose challenges to the global economy. The European Central Bank's (ECB) Financial Stability Review reinforced market fears and warned that further corrections in financial markets could be triggered by escalation of war, even weaker global growth or if the monetary policy needs to adjust faster than expected. This, in turn, was seen as a key factor that prompted fresh selling around the major.

On the economic data front, the US Durable Goods Orders fell short of market expectations, though they did little to dent the intraday bullish sentiment surrounding the USD. Later during the US session, minutes from the May 3-4 FOMC meeting showed that most participants believed a 50 bps rate increase would likely be appropriate in June and July. The minutes, however, lacked any major surprises as the expected move is already priced in, reaffirming the idea that the Fed could pause the rate hike cycle later this year. This, along with a goodish recovery in the US equity markets, acted as a headwind for the safe-haven buck. Apart from this, the recent hawkish remarks by the ECB policymakers, hinting at an increase of at least 50 bps to the deposit rate, assisted the EUR/USD pair in finding decent support near the 1.0645-1.0640 region.

The pair recovered around 50 pips from the daily low and gained some follow-through traction during the Asian session on Friday, though it struggled to capitalize on the move. The worsening global economic outlook continued weighing on investors' sentiment and drove some haven flows towards the greenback, which, in turn, capped the EUR/USD pair. Given that several European markets are closed in observance of Ascension Day, the USD price dynamics will play a key role in influencing the pair. Later during the early North American session, traders will take cues from the US economic docket - featuring the release of Prelim Q1 GDP, the usual Weekly Initial Jobless Claims and Pending Home Sales. Apart from this, the broader market risk sentiment will drive the USD demand and produce short-term trading opportunities around the pair.

Technical outlook

From a technical perspective, the recent strong recovery from the YTD low faltered ahead of a confluence resistance comprising of 50-day SMA and the 50% Fibonacci retracement level of the 1.1185-1.0350 fall. The said barrier, around the 1.0770 region, should now act as a pivotal point, which if cleared decisively will be seen as a fresh trigger for bullish traders. The EUR/USD pair might then surpass the 1.0800 mark and aim to test the next relevant hurdle near mid-1.0800s en route to the 1.0880 supply zone. The latter coincides with the 61.8% Fibo. level and cap any further upside, at least for the time being.

On the flip side, the overnight swing low, around the 1.0645-1.0640 region, now seems to protect the immediate downside. Some follow-through selling would expose the 23.6% Fibo. level support, near mid-1.0500s, with intermediate support near the 1.0600 round-figure mark.