EUR/USD Forecast: Some consolidation appears on the cards near term

A humble rebound in the US Dollar (USD) prompted EUR/USD to resume its bearish tone and shift its focus to the downside at the beginning of the new trading week.

The tepid advance in the Greenback followed investors’ re-assessment of the timing of a potential rate cut by the Federal Reserve (Fed), now anticipated to occur later than previously thought, possibly in September, although a move in July has not been utterly ruled out so far.

The continuation of the bullish sentiment in the US Dollar coincided with further range-bound trading in US yields across different timeframes and a consistent narrative regarding the divergence in monetary policy between the Fed and other G10 central banks, particularly the European Central Bank (ECB).

In this context, recent comments from Board members favoured the start of the bank’s easing cycle in June, with speculation running around three interest rate cuts (or 75 bps) for the remainder of the year. In contrast, the Fed is expected to reduce its interest rates for the first time in September, although a similar move at the July event should not be discarded just yet.

Looking ahead, the relatively lacklustre economic fundamentals in Euroland, combined with the resilience of the US economy, bolster expectations for a stronger Dollar in the medium term, especially considering the view that the ECB could surely start cutting rates before the Fed. In such a scenario, EUR/USD is anticipated to experience a more significant decline in the short term.

EUR/USD daily chart

EUR/USD short-term technical outlook

The breach 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). Once this region is cleared, a potential visit to the 2023 bottom of 1.0448 (October 3) might start shaping up prior to the round milestone of 1.0400.

On the upside, EUR/USD is projected to find initial resistance at the crucial 200-day SMA of 1.0814, 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.

The 4-hour chart indicates that the bearish trend appears to have recovered some momentum. The initial support is at 1.0601, followed by 1.0516. In the other direction, the initial up-barrier is at 1.0690, ahead of 1.0756 and the 100-SMA at 1.0739. The Relative Strength Index (RSI) climbed past 46.