EUR/USD Bears Strengthened by Diverging Interest Rate Outlook

EURUSD image

EUR/USD remains within a contained range, slightly down in the 1.0630s, as geopolitical concerns ease and divergent interest rate expectations weigh on the pair.

Key Factors:

  • Diverging Rates: Analysts expect USD to benefit from a more aggressive Fed stance compared to a potentially dovish ECB, creating downward pressure on EUR/USD.
  • Hawkish Fed: Persistent US inflation, robust jobs market, and strong growth support higher-for-longer US interest rates.
  • Dovish ECB: Easing European disinflation and weaker economic activity suggest a potential ECB rate cut in June.
  • Analysts’ Views: Experts at Commerzbank predict a decline towards 1.0400, with bearish sentiment prevailing despite current stability.

Technical Analysis: Bear Flag Formation Signals Downside Potential

  • Bear Flag Pattern: Recent price action suggests a potential Bear Flag formation, signaling further decline if the 1.0601 support breaks.
  • Technical Targets: A break below 1.0601 could trigger a move towards the Fibonacci 0.618 target (1.0503), with potential further downside to 1.0446 or even 1.0403.
  • RSI Signal: The RSI exiting oversold territory adds to the bearish sentiment.
  • Bullish Resistance: Bulls need to overcome the 1.0700 resistance, followed by 1.0725 and 1.0800, to signal a potential recovery.

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