EUR/USD Forecast: The hunt for the 200-day SMA

The indecisive movement of the US Dollar (USD) seems to have been enough to bolster the continuation of the march north in EUR/USD at the beginning of the week. The pair, however, failed to retest or surpass the key 1.0800 barrier amidst its fourth consecutive daily advance.

This uncertain momentum of the Greenback coincided with investors' evaluation of the recent decision by the Federal Reserve (Fed) to maintain its interest rates unchanged at 5.25%–5.50% at its May 1 event and the somewhat disheartening prints from April’s Nonfarm Payrolls (+175K).

During the Fed’s event, the Committee reiterated its openness to rate cuts while expressing concerns regarding inflation and potential disruptions to economic stability. Additionally, the central bank signalled a slowdown in the pace of balance sheet reduction, contrasting with previous warnings.

Extra comments from Chair Jerome Powell at his press conference added to the recent pressure on the Dollar, as he suggested that the next policy adjustment is unlikely to involve a rate hike.

In the longer term, weakness in the Greenback is expected to be temporary due to delayed expectations of a potential interest rate cut by the Fed later this year.

Meanwhile, US yields continued their descent, while the broader macroeconomic landscape continued to highlight the disparity in monetary policies between the Fed and other G10 central banks, notably the European Central Bank (ECB).

Recent statements from ECB board members hinted at the possibility of the ECB initiating its easing cycle in June, fueling speculation about three interest rate cuts (or 75 basis points) for the rest of the year.

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 increasing probability of the ECB cutting rates well ahead of the Fed.

Given this scenario, further weakness in EUR/USD should not be ruled out in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is expected to encounter first resistance at the May high of 1.0812 (May 3), which precedes the interim 100-day SMA of 1.0838 and the April top of 1.0885 (April 9). North of here lies the March peak of 1.0981 (March 8), followed by the weekly high of 1.0998 (January 11), all before hitting the psychological barrier of 1.1000.

Looking south, a break of the 2024 bottom of 1.0601 (April 16) might signal 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 area is reached, a journey to the 2023 low of 1.0448 (October 3) is possible before reaching the round milestone of 1.0400.

The 4-hour chart shows the continuation of the upward trend, with the pair now initially aiming for 1.0812, ahead of 1.0885. Meanwhile, 1.0750 provides early support, ahead of 1.0649 and 1.0601. The relative strength index (RSI) looked stable around 61.