EUR/USD: Contradicting messages from ECB members to weigh on the euro

EUR/USD has hit the highest levels since February in response to weak US labor figures. Overbought conditions and ECB uncertainty may trigger a downfall, Yohay Elam, an Analyst at FXStreet, reports.

The Fed is set to keep the dollar depressed, but the ECB could pressure the euro

“The Fed's message that the economy has a long way to go has been vindicated, and that means no urge to reduce bond-buying. If the central bank continues printing dollars, the greenback has more room to fall. If inflation figures beat estimates later this week, the picture could change, and the same goes for retail sales statistics. For now, the greenback remains pressured.” 

“The European Central Bank pledged to ramp up the pace of its bond-buying scheme in the second quarter but may announce it is already unwinding this policy in June when it convenes again. That is, according to Martin Kazaks, one of the bank's members. Markets would see that as tightening and boost the euro. On the other hand, Olli Rehn, another ECB member, wants to adopt the Fed's approach of allowing inflation to rise above the 2% target to compensate for past misses. That would mean keeping the policy looser for longer, thus weakening the euro.” 

“The Relative Strength Index (RSI) on the four-hour chart is just above 70 – reflecting overbought conditions. Moreover, the pair has failed to recapture the uptrend support line that accompanied until late April, another bearish sign.”

“Some support awaits at 1.2150, the daily low and the April's peak. It is followed by 1.2120, 1.2080 and 1.2050, which all played a role on the way up.”

“The fresh May peak 1.2176 is the immediate line of resistance. It is followed by 1.2240, which was a high point in February, and then by 1.23.”