EUR/USD Forecast: Further losses likely below the 200-day SMA

The resurgence of upward pressure on the US Dollar (USD) observed on turnaround Tuesday sparked a marked pullback in EUR/USD, dragging it to multi-day lows near 1.0680.

The Dollar's uptrend came on the back of a decent rebound in US yields across different timeframes, while investors appear to have already left behind Monday’s strong retracement after Japanese authorities from the Ministry of Finance (MoF) initiated a supposed intervention in the FX markets shortly after the Japanese currency depreciated to multi-decade lows against the Greenback.

Meanwhile, occasional weakness in the US Dollar is anticipated to be temporary due to delayed expectations of a potential interest rate cut by the Federal Reserve (Fed) later in the year.

Regarding this, the FedWatch Tool monitored by CME Group indicated the probability of a 25 bps interest rate cut at the September 18 meeting at nearly 41%, showing little change from a week ago.

In line with their US counterparts, German 10-year bund yields reversed two daily declines in a row amidst ongoing discussions highlighting the divergence in monetary policies between the Fed and other G10 central banks, notably the European Central Bank (ECB).

Recent remarks from ECB board members have suggested the possibility of the ECB starting its easing cycle in June, sparking speculation about three interest rate cuts (or 75 bps) for the remainder of the year.

Looking ahead, the relatively muted economic fundamentals in the Eurozone, coupled with the resilience of the US economy, reinforce expectations for a stronger Dollar in the medium term, especially considering the growing likelihood of the ECB cutting rates before the Fed.

In this context, EUR/USD is anticipated to undergo a more pronounced decline in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to face first resistance at the weekly high of 1.0752 (April 26) ahead of the key 200-day SMA of 1.0801, followed by the April peak of 1.0885 (April 9), the March high of 1.0981 (March 8), and the weekly high of 1.0998 (January 11), all before reaching the psychological barrier of 1.1000.

Looking south, a break of the 2024 low of 1.0601 (April 16) might indicate a return to the November 2023 low of 1.0516 (November 1), which comes before the weekly low of 1.0495 (October 13, 2023). Once this region has been achieved, a visit to the 2023 bottom of 1.0448 (October 3) may occur before the round milestone of 1.0400.

The 4-hour chart indicates a consolidative mindset for the time being. The initial up-barrier is at 1.0752, before the 200-SMA at 1.0768. Meanwhile, 1.0673 offers early support ahead of 1.0601 and 1.0516. The relative strength index (RSI) fell to around 42.