USD Weakness Pushes EURUSD on a Recovery Path

Summary

• Current Trend: Cautiously bullish
• Price Structure: Moving within an ascending channel
• Resistance Levels:
  • 1.1385: Near-term ceiling
  • 1.1455: Key psychological barrier
  • 1.1520: Major breakout level
• Support Levels:
  • 1.1290: Immediate downside cushion
  • 1.1230: Channel base support
  • 1.1180: Crucial for maintaining a bullish structure
  • 1.1300: Pivot level—a drop below could accelerate selling toward 1.1155
• Momentum Indicators:
  • RSI: Remains in bullish territory
  • MACD: Shows widening bullish divergence, supporting upside momentum

A sustained break above 1.1385 could pave the way toward 1.1455 and 1.1520, while a break below 1.1300 could shift sentiment toward bearish.

Fundamental Factors Affecting EURUSD

• U.S. Dollar Weakness:
• The dollar has lost ~5% since April, driven by:
  • Moody's credit downgrade
  • Concerns over Trump's proposed tax cuts and fiscal discipline
• Increasing hedge fund short positions against the dollar
• Eurozone Economic Conditions:
  • ECB Outlook: Confident inflation will return to target in the medium term
  • PMI Data: May composite PMI at 49.5 — signaling contraction in business activity

The bullish case for EURUSD is currently driven more by USD weakness than Eurozone strength.

Key Takeaway for Traders

EURUSD is in a cautiously bullish phase, supported by weakening USD fundamentals and a supportive technical setup. However, economic softness in the Eurozone and uncertainty around U.S. fiscal policy could introduce volatility.

Watch for:

• Price action near 1.1385 and 1.1300
• Eurozone inflation and PMI releases
• Comments from ECB and Fed officials
• Shifts in U.S. fiscal policy (especially related to tax and spending)

EURUSD – H4 Timeframe

The price action on the 4-hour timeframe of EURUSD recently completed a retest of the supply zone after a double bearish break of structure. The subsequent retest has bounced off the trendline resistance and thus is expected to continue the downward trajectory. Confirmations on the lower timeframe will, however, determine the entry approach.

EURUSD – H2 Timeframe

The 2-hour timeframe chart of EURUSD shows a head-and-shoulder pattern forming, with the head falling within the higher timeframe supply zone. The highlighted region serves as the neckline, and a rejection from it would signal the onset of the bearish continuation.

Analyst's Expectations: 

Direction: Bearish

Target- 1.11502

Invalidation- 1.13802

CONCLUSION

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