The EUR/USD pair traded in a narrow range above 1.1600 during the Asian session on Thursday, entering a holding pattern following a previous strong rebound. The pair had previously dipped to a low of 1.1582 but then rebounded swiftly to around 1.1644 during the New York session, indicating a noticeable weakening of short-term bearish momentum.
Strategists point out that while the overall trend for the euro remains cautious, recent downward momentum has shown signs of slowing, potentially limiting the scope for further significant declines. Previously, market consensus leaned towards continued dollar strength, primarily due to heightened hawkish expectations from the Federal Reserve and increased safe-haven demand stemming from Middle East tensions. However, after the euro broke below 1.1600, sustained selling pressure failed to materialize; instead, a clear technical rebound was triggered. Analysis suggests that the swift rebound from 1.1582 to 1.1644 indicates underlying buying support remains present in the market.
Although current bearish momentum has not completely dissipated, it has weakened considerably. Technical charts are beginning to show initial positive divergence signals. This typically occurs when the price makes a new low but some momentum indicators do not weaken correspondingly, often seen as a significant sign of a potential short-term halt in declines.
From a macro perspective, the US dollar was previously supported by the Federal Reserve's meeting minutes. The April FOMC minutes revealed that most officials remained vigilant about inflation risks and believed that if inflation persists above 2%, further policy tightening might be necessary.
Simultaneously, ongoing tensions in the Middle East have fueled demand for the US dollar as a safe haven. Market concerns about potential disruptions to global energy supplies via the Strait of Hormuz could further elevate global inflationary pressures. However, as the short-term rally in the US dollar index has slowed, the euro has gained some breathing room.
Furthermore, market expectations for the European Central Bank's future policy path retain a degree of optimism. Given that the eurozone continues to face energy price and imported inflation pressures, the market anticipates the ECB will maintain a relatively hawkish stance in the near term.
Expectations for the ECB to continue raising rates in June remain relatively high, which to some extent limits further downside for the euro. From a fund flow perspective, some institutions have begun reducing their short euro positions. As the euro's recent decline was rapid, the market entered a technically oversold zone, increasing demand for profit-taking by short sellers.
The 1.1570 area is currently viewed by the market as a crucial medium-term support level for EUR/USD. If the exchange rate subsequently fails to break below this area decisively, it could signal that the euro may enter a more prolonged phase of consolidation rather than continuing a unilateral decline. From a technical perspective, the daily chart for EUR/USD currently shows a clear structure of corrective consolidation. The pair's rapid rebound after breaking below 1.1600 demonstrates that underlying buying interest persists. The MACD indicator's bearish momentum histogram is gradually narrowing, indicating weakening downward momentum, while the RSI indicator has recovered from lower levels to near the neutral zone, suggesting some repair in market sentiment.
The initial resistance area above is located between 1.1650 and 1.1665. A subsequent break above 1.1665 could signal a potential end to the recent downtrend and open the door for further rebound potential.
On the downside, 1.1600 constitutes the first short-term support, while 1.1570 is the most critical technical support zone at present. A decisive break below this level could reopen downside potential, with the pair potentially testing the 1.1500 vicinity.
Looking at the 4-hour chart, EUR/USD has gradually moved away from its previous unilateral decline structure. The price has reclaimed its position above the short-term moving average system. The MACD indicator is returning to near the zero line, showing a recovery in short-term bullish strength. The RSI indicator is holding above 50, indicating market sentiment is gradually moving towards balance.
However, as the US dollar overall remains supported by high interest rate expectations, the euro's short-term rebound potential may still be limited. The market currently leans towards the view that EUR/USD will maintain consolidation within a range of 1.1600 to 1.1650.
The current EUR/USD trend is transitioning from a previous unilateral decline towards a phase of corrective consolidation. While the US dollar remains broadly supported by safe-haven demand and hawkish Fed expectations, the clear weakening of euro bearish momentum has started to cool market expectations for a deeper decline. In the short term, the 1.1570 support level and the 1.1665 resistance level will be key technical zones determining the subsequent direction. If the euro holds above 1.1570, the exchange rate may enter a phase of bottoming consolidation. However, if the US dollar regains strength and pushes the pair below this zone, the euro could face renewed and greater downward pressure. Overall, the market logic is gradually shifting from "unilaterally bearish on the euro" towards "high-level consolidation," with future movements highly dependent on Federal Reserve policy, US Treasury yields, and subsequent stances from the European Central Bank.
Comments