FX.co ★ amiron56 | EUR/USD

EUR/USD Exclusive Market Assessment The EUR/USD currency pair is currently demonstrating a robust upward bias, firmly entrenched in a technical correctional rally that has persisted over the last two weeks. This ascent is underpinned by a significant and enduring fundamental driver: the growing divergence in the expected future monetary policy trajectories of the Federal Reserve (Fed) and the European Central Bank (ECB). The US Dollar (USD) remains under substantial selling pressure as market participants confidently price in a sustained cycle of interest rate cuts from the Fed in the year ahead. Recent, albeit mixed, US economic data, including a high-profile Nonfarm Payrolls (NFP) report that showed some signs of underlying labor market weakness upon revision, has solidified the perception that the US economy is cooling, thereby justifying a more accommodative stance from the Fed. This anticipation of dovish action is the primary headwind for the USD. In contrast, the Euro (EUR) has found structural support from the European Central Bank. The latest communications from key ECB officials suggest a significant reduction in the probability of further aggressive monetary easing. The ECB is expected to revise its Eurozone growth projections upwards in its upcoming meeting, reflecting a more resilient economic outlook for the currency bloc than previously feared. This development—where the market anticipates a significantly more dovish Fed versus a comparatively less-dovish ECB—is fundamentally strengthening the Euro and driving the EUR/USD exchange rate higher. Critical Upcoming Economic News The markets immediate focus and the short-term direction of the EUR/USD will be dictated by two high-impact events this week: European Central Bank (ECB) Policy Announcement: This is the paramount risk event for the Euro. Traders will be intensely analyzing the updated economic forecasts, particularly for growth and inflation, and the forward guidance provided by ECB President Lagarde. A marked increase in growth projections or any language that pushes back against the likelihood of additional rate cuts will inject further bullish momentum into the EUR/USD. Conversely, any expression of heightened economic caution could swiftly halt the rally. US Inflation Report (Consumer Price Index - CPI): The release of the latest US CPI data holds the key for the USDs short-term fate. A figure that registers significantly lower than analysts consensus forecasts will reinforce the market’s conviction in aggressive Fed rate cuts, leading to renewed USD depreciation and an upswing in EUR/USD. Conversely, an unexpectedly high and sticky inflation print would challenge the prevailing dovish Fed narrative, potentially triggering a strong counter-rally in the Dollar. Technical Structure and Price Action Analysis From a purely technical standpoint, the EUR/USD pair is exhibiting strong bullish control. The price has recently ascended past key technical barriers, validating the strength of the ongoing correctional move. On the higher time frames (daily and 4-hour), the price action is characterized by a series of higher highs and higher lows. Momentum indicators confirm this strength: the Relative Strength Index (RSI) is trending towards the 70 mark, which signifies robust momentum but also serves as a warning that the market is becoming technically "overbought" and prone to a short-term consolidation or minor pullback. The Moving Average Convergence Divergence (MACD) indicator is firmly positioned in positive territory and expanding, further confirming the dominance of the buyers. The pair has reached a two-month high, positioning it immediately below a critical, multi-month resistance cluster. This area is expected to present a formidable challenge to the upward move, suggesting that a successful breach will likely require a significant fundamental catalyst, such as a surprising announcement from the ECB or US CPI. The current price level sits within a short-term consolidation range, indicating that traders are building positions ahead of the major news events. Key Support and Resistance Levels Defining the critical price boundaries is essential for any risk-managed trading strategy: Significant Resistance Levels: 1.1790 – 1.1830: This is the immediate, most crucial resistance zone. It combines a major psychological level (1.1800), prior swing highs from recent months, and technical targets derived from the recent consolidation breakout. A sustained closure above 1.1830 would be a major technical victory for the bulls, clearing the path toward the next major targets. 1.1900: This is the next primary target beyond the immediate cluster, representing a strong psychological and technical level from earlier in the year. Significant Support Levels: 1.1710 – 1.1690: This acts as the first line of defense and immediate support, defined by recent minor swing lows and high-volume trading nodes. A short-term pullback is expected to find initial support here. 1.1660 – 1.1620: This is the most critical support zone for the current bullish structure. This area encompasses significant technical turning points. A decisive break and close below 1.1620 would fundamentally negate the current upward bias and signal the start of a deeper, more sustained correction. Proposed Trading Strategy Given the prevailing fundamental and technical alignment, a bullish continuation strategy remains the most strategically sound approach, with risk carefully managed around the high-impact news releases. Primary Strategy: Favorable Long Entry (Buy the Dip) Rationale: The market is structurally supported by the Fed-ECB policy divergence and positive technical momentum. Action: Seek to establish long positions on a clear pullback to the immediate support zone of 1.1710 – 1.1690. Stop Management: A disciplined stop-loss should be positioned just below the critical structural support, for example, at 1.1610, to protect against a trend reversal or unexpected news-driven spike. Profit Targets: Initial targets should be set at the major resistance cluster of 1.1790 and subsequently at the higher target of 1.1830 and finally 1.1900 if momentum is sustained by the news. Alternative Strategy: Reversal Short Entry (Sell the Break) Rationale: This strategy is reserved for a significant fundamental shock, such as a highly-dovish ECB or surprisingly strong US inflation. Action: Only initiate a short (sell) position upon a clear, confirmed breakdown and close below the major support level of 1.1620. Stop Management: Place the stop-loss above the broken support zone, for instance, at 1.1670, to cover unexpected mean reversion. Profit Targets: Target the next major psychological support level at 1.1540. Risk Note: Market volatility will surge around the ECB and US CPI announcements. Traders are advised to scale down position sizes or ensure protective stop-loss orders are in place well before the data release times to mitigate exposure to potential price gaps and whipsaws. The overall thesis for EUR/USD is upward continuation, pending favorable outcomes from the economic news calendar.