EUR/USD Price Forecast: Will Diverging Central Bank Policies Push Euro Past $1.17?

Quick overview

At the time of writing, the EUR/USD is hovering just under $1.1604, with the pair dipping slightly 0.03%. Currency markets continue to digest asymmetrical transatlantic inflation signals. The world’s most traded currency pair is consolidating in a flag-style fashion inside a parallel falling channel, as conflicting macro agendas from the global central banking elites build up for a decisive future trend movement.

What to Watch Today

1. Transatlantic Central Bank Battle: Stronger than anticipated inflation figures have seen investors adjust their expectations for the Federal Reserve’s rate trajectory for the next few months under Kevin Warsh’s chairmanship. In contrast, growing evidence of increased inflation in Europe has prompted the European Central Bank to consider an unexpected rate hike at its next meeting on June 10.
2. Geopolitical Safe-Haven Liquidation: The U.S.-Iran ceasefire has successfully been held for six weeks now, lifting the overall global appetite for risk. In particular, the continued lack of conflict from the Middle East is leading investors to remove risk-averse positions that provide support for the USD.
3. Mixed Economic Figures: Currency investors are currently looking at a confusing macroeconomic picture. While the positive German Ifo sentiment has provided local bullish bias, the weaker manufacturing PMI from France has kept a lid on euro strength.

Technical Analysis

The two-hour chart shows an extremely neat, and technically well-organised setup. Following a touch of the key blue MA dynamic support line at the $1.1600 to $1.1616 area, EUR/USD managed to form a classic bullish hammer candlestick. The bearish retracement that followed was contained to a shallow drawdown, leaving higher lows intact. The oscillator is at a neutral 43 to 47 and has started to make a positive divergence, which suggests sellers are exhausted and sets us up for a bullish technical bounce.

Resistance: $1.1615, $1.1635 to $1.1673 (Red MA ceiling), $1.1700 (major structural floor)

Support: $1.1600 (channel floor), $1.1576 (Fib zone), and a key demand area in the medium term at $1.1559.

Trade Idea

An opportunity to ride the trend is taking shape at the local flag resistance line.

Order: A Buy Stop above $1.1615 Target: $1.1673 (T1) and $1.1700 (T2) Stop Loss: Just below the key dynamic MA invalidation zone at $1.1590

Final Thoughts

The EUR/USD looks to be building up momentum inside a significant technical flag setup. As the macro landscape shifts from geopolitical headlines back to core central bank mandates, we should expect a clear continuation pattern in the coming days or weeks. Sticky U.S. inflation, which came in at 3.8%, is likely to keep the greenback afloat, although any hawkish move from the ECB will add extra support for the EUR. Investors should prepare themselves for the volatility ahead of the upcoming U.S. Michigan sentiment report and make use of these lows in the channel to open new long positions ahead of a medium-term bullish retest.

ABOUT THE AUTHOR See More

Arslan Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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