EUR/USD Forecast: The next up-barrier comes at 1.0750

EUR/USD picked up pace and retested 1.0730 on Monday.
The US Dollar sold off following Japan’s FX intervention.
Germany’s flash CPI disappointed expectations in April.

Pablo Piovano FXStreet

The resurfacing downward pressure on the US Dollar (USD) on Monday triggered a marked response in EUR/USD, pushing the ongoing recovery to the 1.0730 area.

The Dollar's decline exclusively ensued after Japanese authorities of the MoF triggered a suspicious intervention in the FX markets soon after the Japanese currency depreciated to multi-decade lows vs. the Greenback early in the Asian trading hours.

Despite that event, the ongoing weakness in the US Dollar is expected to remain transitory on the back of delayed expectations of a potential interest rate cut by the Federal Reserve (Fed) later in the year.

On this, the FedWatch Tool tracked by CME Group sees the probability of a 25 bps interest rate cut at the September 18 meeting at nearly 45%, barely changed from a week ago.

The renewed weakness in the Greenback coincided with further consolidation in US yields across various time frames and a move lower in German 10-year bund yields, all amidst ongoing discussions highlighting the divergence in monetary policies between the Fed and other G10 central banks, especially the European Central Bank (ECB).

Recent statements from ECB board members have hinted at the ECB beginning its easing cycle in June, fueling speculation about three interest rate cuts (or 75 bps) for the remainder of the year. Against this backdrop, advanced inflation figures in Germany saw the CPI rise 2.2% over the last twelve months in April, missing consensus and matching the previous month's print.

Looking forward, the relatively subdued economic fundamentals in the Eurozone, coupled with the resilience of the US economy, strengthen expectations for a stronger Dollar in the medium term, especially considering the increasing possibility of the ECB cutting rates before the Fed.

In this scenario, EUR/USD is expected to experience a more pronounced decline in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is likely to encounter first resistance at the important 200-day SMA of 1.0803, seconded by the April peak of 1.0885 (April 9), the March high of 1.0981 (March 8), and the weekly top of 1.0998 (January 11), all before hitting the psychological barrier of 1.1000.

Looking south, a break of the 2024 low of 1.0601 (April 16) might signal a return to the November 2023 low of 1.0516 (November 1), which precedes the weekly low of 1.0495 (October 13, 2023). Once this area is reached, a visit to the 2023 bottom of 1.0448 (October 3) may take place before the round milestone of 1.0400.

The 4-hour chart shows some consolidative mood for the time being. The initial up-barrier is at 1.0752, prior to the 200-SMA at 1.0775. Meanwhile, the 55-SMA at 1.0679 provides early support ahead of 1.0601 and 1.0516. The Relative Strength Index (RSI) eased below 56.

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.

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