EUR/USD forecast: Euro reversal in play as Dollar rebounds – What’s next?

Dollar rebounds higher

Dollar managed to create a sustained move to the upside after bouncing off from the 4-Hour Fair Value Gap resting between 97.150-97.316 as mentioned on yesterday’s analysis -  US Dollar forecast: Bullish target hit, can the Dollar push to 98.00 or break below 97.00? - showing signs of strength, as of the moment. With this strength, it paved the way for Euro to slide down near the 1.168 level.

Euro stumbles near 1.168 level as Dollar recovers

The Euro's multi-week rally has come to a halt near the 1.1830 resistance, with price now sliding back below key structure levels. While the broader narrative still includes a weak dollar and improved trade sentiment, the technical landscape shows early signs of distribution. The rejection from the Fair Value Gap and the failure to sustain bullish momentum suggest that the bearish scenario is beginning to play out.

This move was outlined on the last analysis - EUR/USD forecast: Euro extends rally as Dollar dips – Key scenarios to watch - and Euro broke down, invalidating the 4-Hour Fair Value Gap, showing signs of failed support. Parameters that were considered in anticipating a distribution include:

• Price fails to break and hold above the 1.18 level.
• Fair Value Gap level breaks 1.17327-1.17607.

With this, targets have been met:

• 1.173 FVG Bottom.
• 1.172 Previous Equilibrium Level.
• 1.168 Previous Bottom Range Level.

Market drivers recap: Fundamentals still mixed

Despite the recent bullish macro themes, short-term sentiment is beginning to shift:

1. USD weakness may be priced in

Markets have been aggressively selling the dollar due to tariff fears and softening Fed tone. However, this catalyst may now be fully priced in, leaving EUR/USD vulnerable to profit-taking and repositioning.

2. ECB still cautious

While the ECB remains non-committal on further stimulus, policymakers have acknowledged low inflation and soft growth. This adds a ceiling to euro strength, especially when combined with technical exhaustion.

3. US event risk ahead

The upcoming FOMC Minutes (July 9) and U.S. inflation data will be crucial. Any hawkish undertone could fuel further USD strength and deepen the correction in EUR/USD.

Technical outlook

Bullish scenario

A breakout of the current range, invalidating the 2 bearish Fair Value Gaps could give Euro a boost to the upside with the premise that the U.S. dollar would start to lose steam for upside.

• Break above 1.176.
• Bearish FVG (1.17361-1.17643) Invalidation.
• Sustained move above breakpoint.

Targets:

• 1.179-1.181 - Immediate Resistance Levels.
• 1.183 - Multi-Week High.

Bearish scenario

Failure to create new highs and a sustained move to the upside and U.S. dollar continues to recover, we could Euro to slide further. We could see this materialize if:

• The Bearish FVG (1.17361-1.17643) Holds.
• Euro consolidates below 1.172.
• Break below 1.168.

Targets:

• 1.164 - Previous Resistance Turned Support Level.
• 1.158 - Low of the Next Range.