The euro continued its upward trajectory against the US dollar during early Asian trading on Friday, reaching around 1.1460 and setting a new weekly high. The primary driver behind this EUR/USD rebound is the sustained weakness of the US dollar, influenced by the relatively dovish tone from recent Federal Reserve meeting minutes. The minutes revealed significant divergence among policymakers regarding future interest rate direction, leading markets to scale back expectations for further dollar strength. As investors reassess the Fed's future policy path, the US Dollar Index remains under pressure, providing room for the euro to recover.
However, the dollar's decline is facing constraints. Persistent global geopolitical uncertainties, particularly risks to energy supply that could impact inflation expectations, may still channel market funds back into safe-haven assets like the US dollar. Consequently, despite consecutive gains for EUR/USD, potential for further significant breakthroughs remains limited. From a technical perspective, the pair is currently testing a critical resistance zone. The recent rebound primarily stems from a recovery from previous lows, with the price attempting to breach the 23.6% Fibonacci retracement level of its April-June decline, though a decisive breakout has not yet been confirmed.
Furthermore, since rebounding from its yearly low, EUR/USD has been moving within an upward-sloping channel. However, this structure currently shows potential for forming a bearish flag pattern, suggesting the current uptrend might still be part of a medium-term corrective phase rather than a confirmed new bullish trend. Technical indicators remain somewhat positive. The Relative Strength Index (RSI) is currently near 60, indicating increased buying pressure but not yet entering overbought territory. The MACD indicator is above the zero line with its histogram showing moderate expansion, suggesting short-term downward pressure has eased.
Currently, the price remains supported by the rising trend channel, with a key support level near 1.1400. If this area holds as effective support, EUR/USD still has a chance to test higher resistance levels. A break below this level, however, could see the pair revert to a corrective pattern.
Looking at the daily chart structure, EUR/USD maintains a short-term recovery trend, trading above its short-term moving averages with improving market momentum. Initial upside resistance is focused on the 1.1490-1.1500 area, which coincides with the 200-period Exponential Moving Average and the upper boundary of the channel, making it a crucial battleground for bulls and bears. A confirmed break and hold above this zone could pave the way for further tests of Fibonacci retracement targets near 1.1525 and 1.1585. Downside support is watched at 1.1400; a break below could lead to a deeper retreat towards the 1.1330 area.
On the 4-hour chart, EUR/USD maintains a volatile upward structure, with short-term moving averages continuing to point higher, indicating short-term buyers still hold the advantage. The RSI indicator remains in a strong zone, and the MACD maintains a positive alignment, suggesting the rebound momentum is not yet exhausted. However, with the pair approaching the 1.1490 resistance area, failure to break through could trigger short-term profit-taking. A confirmed break and hold above 1.1500 could open the door for further gains, while a drop below 1.1400 would increase the risk of a pullback.
Key Factors for the EUR/USD Move
The recent EUR/USD advance is primarily fueled by a weaker US dollar and moderated expectations for Federal Reserve policy. However, the current price action is still considered a technical correction phase, with a full trend reversal not yet confirmed. The 1.1490-1.1500 zone is poised to be a critical juncture determining the short-term direction. Future market focus will center on Federal Reserve policy signals, movements in the US Dollar Index, and global risk sentiment. Continued pressure on the dollar could allow the euro to extend its rebound and challenge higher resistance levels. Conversely, a resurgence in safe-haven demand leading to a dollar recovery would likely cap EUR/USD's upside potential. Short-term traders should monitor for decisive breaks either above the 1.1500 resistance or below the 1.1400 support level.