EUR/USD Forecast
- EUR/USD It is testing trend line support amid a broad base U.S. dollar power
- The recent rise in US Treasury yields has boosted the dollar’s recovery
- This article focuses on euroKey technical levels to watch in the coming days
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The US dollar has recently started a strong recovery, driven by the rise in US Treasury yields thanks to the exceptional privacy of the US economy. Business activity and the job market in the United States have held up remarkably well over the past few months despite several headwinds, including the banking sector turmoil that erupted in March.
Economic resilience has led some Fed officials (Bullard, for example) to take a more hawkish stance, causing them to support additional tightening and higher rates for longer. Against this backdrop, yields have rebounded dramatically, with the two-year note rising from 3.65% this month to 4.4% at one point on Tuesday morning, a significant step in a short period of time by bond market standards.
The rising US dollar has hurt most developed market currencies, such as the euro and the yen. For example, EUR/USD is down nearly 3% from its peak in May, although some private factors also contributed to the shared currency’s underperformance, such as a slump in manufacturing activity in Germany.
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Looking ahead, there is reason to think that the US dollar may hold the reins for a little while longer. One potential bullish catalyst is the US debt ceiling impasse. Volatility could increase dramatically in the coming days if Congress fails to reach an agreement to raise the country’s borrowing capacity soon, boosting demand for the safe haven.
While it is likely that lawmakers will reach an agreement at some point, that may not happen until the eleventh hour, when markets are really starting to get turbulent. History suggests that only panic tends to unite political parties in Washington. As the market becomes more nervous about a US default, EUR/USD may extend its decline in the near term.
|
change in |
Longs |
Shorts |
Hey |
| Daily | 5% | -2% | 2% |
| weekly | 4% | -7% | -1% |
Technical analysis of the EUR/USD pair
After the recent decline, EUR/USD is testing trend line support near 1.0775/1.0770, which is the last line of defense against a deeper decline. If the bulls fail to protect this floor and prices slide below it, the selling pressure could accelerate, paving the way for a move towards 1.0625.
On the flip side, if the pair can establish a base around the current levels and reverses higher in the direction of the broader trend, initial resistance appears at the psychological 1.0900 mark, just above the 50-day SMA. For added strength, the focus moves to the highs in 2023.