EUR/USD Forecast: Euro's sharp reversal a bad sign for bulls

EUR/USD has made a sharp U-turn late Thursday after having advanced to its strongest level in more than a week at 1.0937. With safe-haven flows dominating the financial markets early Friday, the pair continues to edge lower toward 1.0800. In case buyers fail to defend this level, the shared currency is likely to suffer additional losses ahead of the weekend.

Hawkish comments from European Central Bank (ECB) policymakers triggered a euro rally on Thursday. ECB Vice President Luis de Guindos noted that, depending on the data, a rate hike in July was possible. Speaking at the IMF event later in the day, however, ECB President Christine Lagarde refrained from commenting on the timing of the first rate hike. "In the current conditions of high uncertainty, we will maintain optionality, gradualism and flexibility in the conduct of monetary policy," Lagarde reiterated.

On the other hand, FOMC Chairman Jerome Powell acknowledged that 50 basis points rate hikes will be on the table at the upcoming meetings and added that the US economy was doing very well with a tight labour market.

The euro lost its bullish momentum on Lagarde's cautious tone and the negative shift witnessed in risk sentiment combined with Powell's remarks helped the dollar gather strength. In turn, EUR/USD erased its weekly gains.

Although the data from Germany and the euro area showed on Friday that the business activity in the private sector continued to expand at a robust pace in early April, major European equity indexes are suffering heavy losses.

Unless the market mood improves in the second half of the day, EUR/USD might find it difficult to stage a recovery. The US economic docket will feature the preliminary S&P Global PMI figures for April. ECB President Lagarde is scheduled to deliver a speech at 1300 GMT as well. 

EUR/USD Technical Analysis

With the latest drop witnessed in the early European session, EUR/USD crossed below the 20-period and the 50-period SMAs on the four-hour chart. Additionally, the Relative Strength Index (RSI) indicator retreated below 50, pointing to a bearish shift in the near term.

On the downside, 1.0800 (psychological level) aligns as the first support. In case this level turns into resistance, further losses toward 1.0760 (post-ECB low) and 1.0730 (April 24, 2020, low) could follow.

1.0830 (20-period SMA, 50-period SMA) forms the initial resistance ahead of 1.0850 (Fibonacci 23.6% retracement of the April downtrend) and 1.0880 (100-period SMA).