Euro Price Outlook: EUR/USD Breakdown Pulls Back as USD Holds 105

Euro, EUR/USD Talking Points:

• EUR/USD broke down to a fresh 2024 low on Tuesday on the back of a stronger-than-expected CPI report out of the U.S., with the USD jumping up to a fresh high at the 105.00 level on DXY.
• The bearish break ran for about 30 pips below the prior low and then started to stall, with that support holding through yesterday. As discussed on webinars of late, comments from Fed officials helped to arrest the move as there appeared to be little fear from the Fed that the shift into a dovish posture will be de-railed.
• The big question now turns to the economic calendar with U.S. PPI set to release tomorrow at 8:30 AM and U of M Consumer Sentiment set for release at 10 AM ET.
• I’ll be discussing these themes in-depth in the weekly webinar. It’s free for all to register: Click here to register.

EUR/USD bears continue to push at resistance, but they’ve been far more reserved on tests of support and there’s another instance of that showing so far this week. Sellers made a loud re-entrance to the pair around the turn of the year, but since then, the bearish trend that’s held has been a slow and grinding type of move.

The 200-day moving average came into play a month ago and that started to slow the sell-off. There was a couple of weeks of support there but what ultimately gave bears the fuel needed to elicit a break was the NFP report from a couple of weeks ago. That showed notable strength in the U.S. labor market and that led to a sharp move of USD strength, with DXY posing the strongest two-day rally in over a year.

But, in EUR/USD, that USD rally brought in a support test at 1.0725 and that low continued to hold through last week and into this week, building a bullish channel along the way. When taken with the prior trend that channel can be construed as a bear flag and this gives some additional context to the current backdrop.

Sellers got another shot-in-the-arm with the CPI report on Tuesday, which finally led to a breach of 1.0725. But similarly, once bears breached to that fresh low the selling pressure suddenly slowed, and prices have been trickling higher ever since. This extends the dynamic that I’ve been talking about on webinars, where the ‘natural flow’ of the market seems to support USD-higher and EUR/USD-lower. But, with little fear or even apprehension being shown by Fed officials that are still focusing on cuts later in the year, there’s been a reticence from trend traders to push breakouts too far.

On the below daily chart, we can see that dynamic at play, along with a couple of key resistance levels that sit just above price; and that would be the next test for bears, whether they can continue the sequence of lower-high resistance.

EUR/USD Daily Chart

EUR/USD Longer-Term

Perhaps one of the issues in shorter-term EUR/USD dynamics is the range that’s built in the pair over the past year. The 1.0500 level has been especially difficult for sellers as last year produced three different tests at or near the psychological level, each leading to a sizable bounce of at least 500 pips, at 1.1000 or higher.

Before that comes into play, there’s another area of reference that runs from the Fibonacci level of 1.0610 up to the 2020 swing low at 1.0638.

Also of interest from that longer-term chart is a trendline projection that remains in-play as near-term resistance. That trendline connects swing lows from each of the past two years and it had initially helped to set support when it came back into play last week. But the CPI print this week helped bears to get below, and now the pullback is showing resistance at prior support.

EUR/USD Weekly Price Chart

--- written by James Stanley, Senior Strategist