EUR/USD Forecast: Next relevant hurdle comes at the 200-day SMA

EUR/USD bounced off yearly lows near 1.0600.
The Dollar’s loss of momentum lent legs to the risk complex.
The ECB-Fed policy divergence dominates the scenario.

Pablo Piovano FXStreet

A decent bounce in EUR/USD left behind six consecutive daily drops, including a new YTD bottom near 1.0600 the figure, regaining the mid-1.0600s in response to some loss of impetus in the Dollar’s rally.

The recent multi-session strong rally in the greenback occurred as investors re-evaluated the timing of a potential rate cut by the Federal Reserve (Fed), now anticipated to occur later than previously thought, potentially in December.

This reassessment coincided with a move lower in US yields across the curve and a steady narrative regarding the divergence of monetary policy between the Fed and other G10 central banks, particularly the European Central Bank (ECB).

Regarding the ECB, Board member Holzmann highlighted the differing inflation dynamics between Europe and the US, emphasising the need to await developments until June before considering any cuts. He cautioned against premature speculation on the frequency of potential cuts by the ECB in 2024, noting that moving ahead of the Fed could diminish the effectiveness of such measures.

Echoing this sentiment, the ECB's Cipollone observed a rapid decline in inflation, expressing expectations for a return to the 2% path next year and attainment of the target by mid-2025. Should data in June and July confirm growing confidence in achieving the target, consideration would be given to easing some of the restrictive measures imposed in 2023. Additionally, the impact of the Middle East conflict on energy costs remains a significant risk factor.

Around the Fed, at an event hosted at The Wilson Center in Washington on Tuesday, Chair Powell stated that recent data have not instilled increased confidence in them; rather, they suggest that it will likely take more time than anticipated to gain that confidence.

Looking forward, the relatively subdued economic fundamentals in the eurozone, coupled with the resilience of the US economy, reinforce expectations for a stronger Dollar in the medium term, particularly considering the prospect of the ECB lowering rates before the Fed. In such a scenario, EUR/USD is anticipated to experience a more pronounced decline from a short-term perspective.

EUR/USD daily chart

EUR/USD short-term technical outlook

The fall of the 2024 low of 1.0601 (April 16) may signal a return to the November 2023 low of 1.0516 (November 1), prior to the weekly low of 1.0495 (October 13, 2023), the 2023 bottom of 1.0448 (October 3), and the round milestone of 1.0400.

On the upside, EUR/USD is projected to find initial resistance at the crucial 200-day SMA of 1.0822, followed by the April high of 1.0885 (April 9), the March top of 1.0981 (March 8), and the weekly peak of 1.0998 (January 11), all before hitting the psychological barrier of 1.1000. Further advances from here could threaten the December 2023 high of 1.1139 (December 28).

The 4-hour chart shows that the bearish trend seems to have met some contention around the 1.0600 neighbourhood. Against it, the initial support is at 1.0601, followed by 1.0516. In the opposite direction, the initial up-barrier is at 1.0665, ahead of 1.0756 and the 100-SMA at 1.0767. The Moving Average Convergence Divergence (MACD) rebounded from recent lows, while the Relative Strength Index (RSI) advanced past 45.

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

AUD/USD bulls regain control above 0.6950 amid USD retreat

AUD/USD regains traction and extends the previous day's bounce from the weekly low, aiming for 0.7000 in Asia on Friday. The overnight pullback in US bond yields keeps the US Dollar below an 18-month high, which in turn offers some support to the pair. Meanwhile, hawkish RBA expectations also keep the major underpinned.

USD/JPY holds gains near 158.00 after Japan's weak Household Spending data

USD/JPY clings to gains around 158.00 after data showed on Friday that Japan's Household Spending fell for the ninth straight month, undermining the Japanese Yen. Meanwhile, the US Dollar remains depressed as the overnight fall in US bond yields counters a hawkish Fed and geopolitical uncertainties, could cap any downside in the pair.

Gold remains range-bound below $4,200

Gold has given up some ground after an initial bullish attempt to reach weekly highs, returning to below the $4,200 mark per troy ounce on Friday. The US Dollar’s strong upside momentum, combined with rising US Treasury yields across the curve, seems to keep further gains in the yellow metal under scrutiny.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?

The Euro is not the sick man of Europe. France's bond market is

EUR/USD remains under pressure, near the 17-month low of 1.1161 reached on Monday. The pair has lost more than 7% since its yearly peak, as concerns over France's public finances increasingly weigh on the single currency. But behind the weakness of the Euro (EUR), the problem does not necessarily lie with the European economy as a whole.