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EUR/USD Analysis: Halt in Gains

  • The EUR/USD has been trading around $1.08 heading into the end of May, near its March highs.
  • It is benefiting from general US dollar weakness amid growing expectations that the Federal Reserve will cut US interest rates this year.
  • In Europe, the European Central Bank is likely to cut borrowing costs by June, but there are doubts beyond that, as many policymakers are calling for a cautious approach.
  • Last week, EUR/USD gains extended above the 1.0895 resistance level before selling pressure pushed it towards the 1.0835 support level and settled around the 1.0860 level at the time of writing.

EUR/USD Analysis Today 21/5: Halt in Gains (graph)

According to the results of the economic calendar, the current inflation rate in the eurozone is 2.4%, very close to the ECB's target of 2% and well below 7% last year. Also, new eurozone GDP estimates have confirmed that the economy emerged from recession in the first quarter and new forecasts from the European Commission continue to point to a soft-landing scenario.

Weekly Forecast for EUR/USD:

The euro exchange rate against the US dollar could decline from its recent highs in the coming days before rising again. According to the platforms of Forex currency trading companies, the euro price completed its fifth weekly gain against the dollar. It is driven by the lower-than-expected inflation reading last week, indicating that the tide may turn to a higher dollar in 2024.

A series of negative data surprises in late April and May means Markets are once again starting to raise expectations about the number of interest rate cuts by the US Federal Reserve that are likely to be made in 2024. Thus, it indicates to us that the euro against the dollar may have reached its lowest levels for the year in April.

The main event for the euro this week will be the preliminary May PMI numbers on Thursday, which should confirm the continued recovery. Markets are looking for the German Composite PMI to record 43.5, and any improvement in this may support the euro price. Ultimately, the key number to watch regarding the euro zone release is the composite PMI, which is expected to read at 52, up from 51.7 in April.

At the same time, there is no major US data scheduled for this week, but there will be an unusually busy calendar of Fed speakers. We expect the overall message to be one of caution in light of the recent slowdown in US data, with most unwilling to say they support imminent rate cuts. Eventually, any impact on the dollar will not last.

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    EUR/USD Technical analysis and forecast:

    The broader upward trend for the EUR/USD exchange rate remains intact from its April low, supported by a wide alignment of bullish trend indicators across short-term, daily, and weekly DMI indicators. Confidence in the recovery is growing as the exchange rate has crossed the critical 200-day moving average. Our forecast rules for this week indicate that the exchange rate is in an upward trend when it is above 200 DMA. Technically, the strong rally has left the euro looking somewhat overbought in some respects and the subsequent pullback from the 1.0894 high seems justified. As the chart also shows, the exchange rate had reached the upper Bollinger Band, indicating an increased probability of a pullback or consolidation.

    Meanwhile, minor losses from this week's peak may extend slightly, but the decline appears corrective, perhaps ahead of another push higher. Therefore, the overall setup is one of the potential weak points in the coming days, but the bigger picture remains one of a recovery that could take the market back to 1.10 psychological resistance. On the other hand, slight declines to the 1.08 area can be expected, but they should remain well supported.

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    Mahmoud Abdallah
    About Mahmoud Abdallah
    Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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