Home ForexForecasts EUR/USD Rebound Looks More Like a Bull Trap: Key Trading Levels

EUR/USD Rebound Looks More Like a Bull Trap: Key Trading Levels

by SuperiorInvest
  • The EUR/USD pair is slightly stronger, but the resurgence of the US dollar keeps it under pressure, requiring more price action to attract bullish interest.
  • The short-term trend remains bearish and despite the current calm, selling pressure may resume.
  • This could intensify if central banks such as the Federal Reserve, the ECB and the Bank of England do not reduce interest rates as expected.
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Markets were a bit quiet at the start of European trading on Thursday, after the major US indices managed to rebound from their lows on Wednesday following a sizeable drop in global indices and US futures earlier in the day.

Consequently, the couple was a little more firm at the time of writing. But with its strong comeback, this popular currency pair is not out of the woods yet.

More price action is needed to attract the bulls. For now, the short-term path of least resistance remains downward.

Calmer market conditions may not last

Despite the calmer conditions, the selling pressure on risk assets, and therefore EUR/USD, could resume without a fundamental change in the current macroeconomic context.

The big concern right now is that major central banks like the Federal Reserve, the ECB and the Bank of England will not cut interest rates as soon and as much as markets had expected.

While in the case of the United States this is partly due to a relatively stronger economy, elsewhere – especially in the United Kingdom and the eurozone – it is mainly due to concerns that inflation remains rigid and wage pressures remain high.

On Wednesday we heard the ECB president suggest that borrowing costs could fall in the summer rather than the spring, while several other ECB officials have also expressed concerns about wage inflation.

Christine is scheduled to speak again today at 15:15 GMT, while Eurozone data highlights will include the ECB’s release at 12:30 GMT.

Now that the ECB is delaying expectations of rate cuts, the single currency could well perform better against some of the weaker currencies.

But against the dollar, risk sentiment will need to improve further before it can hold at current levels.

US Dollar Pulls Back, But Path of Least Resistance Remains Bullish

The US dollar rally has stalled a bit in line with a positive start to risk sentiment at the start of Thursday’s session.

Investors will be keeping an eye on today’s calendar, although these are by no means top-tier data releases. Today’s FedSpeak will feature centrist Raphael Bostic.

The US dollar has found support in recent days on renewed concerns about the Federal Reserve’s inclination to keep interest rates higher for longer than market expectations.

This week’s rally was sparked by Federal Reserve Governor Christopher Waller. While he acknowledged the positive trajectory of inflation, Waller suggested a measured approach and warned against any rush in considering short-term rate cuts.

He highlighted the resilience of the U.S. economy and downplayed expectations of an imminent reduction in interest rates as a result.

We’ve had better-than-expected jobs and reporting in recent weeks, defying concerns associated with interest rates at their highest level in 22 years.

EUR/USD Technical Analysis and Trading Ideas

EUR/USD formed a small hammer candle right at its 200-day moving average on Wednesday and climbed back above the broken support level of 1.0877.

At first glance this looks like a bullish sign and there was some continuation during the Asian session overnight. But many bullish patterns have been broken so far this year and this could be another.

The bulls still need a higher high to form in EUR/USD to be confident that a bottom has formed.

A possible rise above 1.0950 would be a bullish signal, as for the price to get there, we will have formed a three-bar reversal.

Therefore, a break above 1.0950 is what I am looking for to turn tactically bullish on EUR/USD, which could then pave the way for a stops run above last week’s high at 1, 1000.

But as long as we do not see a bullish reversal pattern, the short-term trend would remain bearish amid an overall positive environment for the US dollar that we have seen since the beginning of the year.

Key short-term resistance is seen just above the 1.09 level, where the backside of the broken trendline comes into play.

Aggressive bearish traders may want to intervene around these levels, while more conservative ones would prefer to see more bearish price action before committing.

For this latter group, if EUR/USD shows a sign that the bulls are trapped, this may be the trigger they are waiting for.

A possible break below that 1.0877 support could trigger a move below Wednesday’s low of 1.0844, where some selling stops are undoubtedly located.

Below this level, the next potential downside target could be around 1.0815, which was the origin point of the last rally. The next bearish target is liquidity below the December low at 1.0723.

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Disclaimer: This article is written for informational purposes only; It does not constitute a solicitation, offer, advice or recommendation to invest as such and is not intended to encourage the purchase of assets in any way. I would like to remind you that any type of asset is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains in the hands of the investor.

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