In Thursday’s trading session, EUR/USD maintained its position in the 1.0680s, showing marginal gains for the day. This upward movement follows a notable turnaround midweek, initiated after touching down at April’s lows of 1.0601.
Despite this recent rebound, it remains uncertain whether EUR/USD is undergoing a corrective phase within its downtrend or signaling a potential reversal. The substantial bullish recovery, amounting to 80 pips within 36 hours, keeps bullish sentiments alive among traders.
The rebound in EUR/USD received a further boost from remarks made by European Central Bank President Christine Lagarde during a speech in Washington. Lagarde emphasized that “The game (of fighting inflation) is not over,” while acknowledging the slower growth in Europe compared to the US. Her comments inject a hint of uncertainty regarding the ECB’s potential interest rate cuts in June, which could positively impact the Euro by attracting more foreign capital.
However, not all perspectives align with Lagarde’s remarks. Some ECB colleagues have expressed views suggesting that inflation is behaving as expected and tracking lower. This divergence of opinions introduces uncertainty regarding the timing of potential interest rate adjustments by the ECB.
The recent plunge of EUR/USD at the beginning of April was driven by expectations of a Federal Reserve interest rate cut in June, which subsequently dissipated due to persistent inflationary pressures and robust macroeconomic data. Federal Reserve Chairman Jerome Powell’s indication that high interest rates may persist longer than anticipated, coupled with the Fed‘s Beige Book report reaffirming little progress on inflation, reinforces the notion of sustained interest rates in the US.
From a technical perspective, EUR/USD’s recent recovery is notable, with momentum gaining strength and the Relative Strength Index (RSI) signaling a buy. However, it’s premature to conclude whether this marks a reversal or merely a temporary pullback within the overarching downtrend. Resistance around 1.0700 may impede further upward movement, potentially leading to a rotation downward.
In the absence of concrete evidence suggesting a reversal, the intermediate-term downtrend is likely to persist, with a break below April’s lows at 1.0601 signaling further downside. The next significant support level lies at 1.0446, the October 2023 low. As traders await further developments, EUR/USD remains poised for continued volatility amidst evolving market dynamics.
