EUR/USD Finds Resistance at Previous High – Turn in Sentiment on Rates Policy from US

The euro rallied in the early morning session but failed to break the resistance level of 1.0884 set from a previous high set on April 9.

The EUR/USD had been rallying on expectations of Fed rate cut coming sooner rather than later. However, market sentiment seemed to change on day with no macro data expected.

The ECB is seen as set to cut rates in June, but the driving force for the recent rally has been expectations of the Fed cutting rates before the year end.

The data from the US would seem to support the possibility of a rate cut. Yet the latest comments from major FOMC members such as the Fed chair Powell or member Kashkari seem to warn caution as to just how quickly the Fed might cut rates.

A cut in June, although expected, would make the carry trade even more profitable when long dollars. The more the Fed delays, the more the euro will feel the bite of having a wider rate differential in favour of the dollar.

Technical View

The day chart below for the EUR/USD shows a market on a bullish leg that’s attempting to break the Ichimoku cloud. The overall trend is still bullish, with a previous failed attempt to break above the cloud in March.

Today’s candle met resistance from the previous high set on April 9 (red line), with the lagging line (green line) meeting resistance from the cloud. The support level is at 1.0797 (green line). Should the market break the resistance level, the next resistance is at 1.0940.