EUR/USD Fades from Highs as U.S. Asset Demand Revives; Yield Spreads Weigh
Technical Analysis:
EUR/USD initially surged during Monday’s trading, reaching an intraday high at 1.1288 on EBS amid broad-based dollar selling triggered by Moody’s downgrade of the U.S. credit rating. However, bullish momentum was short-lived as the New York session unfolded, with the pair quickly retreating to near 1.1225 after buyers returned to U.S. assets. This recovery in demand for Treasuries, equities, and softer gold prices collectively supported the dollar, reversing early gains in the euro and suggesting that market participants viewed the ratings downgrade as broadly priced in, thus limiting further EUR/USD upside.
From a technical viewpoint, EUR/USD’s inability to sustain its break above the descending trendline from the April 21 high around 1.1275 signals a lack of bullish conviction. The pair’s rejection at this key resistance level raises concerns for bulls, further evidenced by a declining monthly RSI that underscores weakening medium-term bullish momentum. Moreover, EUR/USD remains capped below its pivotal 21-day moving average (currently around 1.1250), which further complicates the technical landscape for bullish traders, suggesting ongoing vulnerability to downside pressures.
Despite these bearish signals, some near-term technical indicators offer bulls limited comfort. EUR/USD remains supported above the rising daily Ichimoku cloud base (around 1.1200), an important technical support that has consistently underpinned recent dips. Additionally, the rising daily RSI points to some residual bullish strength on shorter timeframes. Nonetheless, unless EUR/USD manages to decisively reclaim and sustain a daily close above the 21-DMA and trendline resistance near 1.1275, bears could regain control, potentially pushing the pair back towards structural support at 1.1170 and possibly lower toward the 1.1100 psychological barrier.