EUR/USD Sets Fresh Multi-Year High Amid Weak U.S. Economic Data and Technical Strength
EUR/USD Sets Fresh Multi-Year High Amid Weak U.S. Economic Data and Technical Strength
EUR/USD surged to new multi-year highs, driven by weakening U.S. economic data and broad dollar softness. Although the pair faced resistance after reaching its highest level in nearly four years, underlying bullish sentiment remains intact due to favorable economic comparisons and robust technical indicators.
Technical Analysis
EUR/USD initiated trading in New York around 1.1715 after an overnight session on EBS that saw it at 1.1681. Bullish momentum quickly extended the rally, pushing the pair up to a peak of 1.1755, marking a fresh three-and-three-quarter-year high. However, sellers emerged at this elevated level, causing the pair to retreat below the 1.1715 mark later in the New York session, limiting gains to a modest +0.09% on the day.
Technical indicators continue to favor a bullish scenario despite this intraday pullback. The daily and monthly Relative Strength Indices (RSIs) are trending upward without yet reaching overbought conditions, implying sustained potential for additional gains. Crucially, the pair remains above the critical 76.4% Fibonacci retracement of the extensive decline from 1.2349 to 0.9528, reinforcing positive market sentiment.
Additional bullish support is evident with the pair holding firmly above its rising 10-day and 21-day moving averages, indicative of healthy short-term and medium-term trends. However, traders should cautiously monitor the formation of a daily inverted hammer candlestick, which may signal potential near-term exhaustion of bullish momentum, warranting vigilance around current resistance levels.
Immediate resistance now stands firmly at the recent high of 1.1755, with the next significant barrier being the September 2021 monthly high at 1.1909. A sustained breakout above this level would substantially enhance bullish conviction, potentially targeting the 2021 yearly high.
On the downside, initial support is situated at 1.1680, followed by a more substantial level at 1.1600. Further support below is provided by the confluence of moving averages around the 1.1550-1.1570 zone, a critical area for maintaining the bullish bias in the near term.
Economic Indicators and Market Factors
The latest economic data from the U.S. has substantially contributed to the recent dollar weakness, fueling EUR/USD’s upward trajectory. The May personal income and consumption reports fell significantly short of market expectations, highlighting weakening consumer strength—a crucial component of U.S. economic resilience.
Continuing claims, now at their highest levels since November 2021, further underscore concerns about the sustainability of the U.S. labor market recovery. This negative economic backdrop has placed downward pressure on U.S. Treasury yields, thereby narrowing U.S.-German yield spreads and boosting the relative attractiveness of euro-denominated assets.
The softening U.S. economic indicators amplify speculation regarding potential Federal Reserve rate cuts sooner than previously anticipated. Market participants increasingly factor in this dovish shift, intensifying bearish sentiment on the U.S. dollar and providing consistent upward momentum for EUR/USD.
Risks and Strategic Considerations
Despite the currently bullish technical and fundamental backdrop, EUR/USD faces several potential risks. First, the inverted hammer candlestick on the daily chart raises the possibility of a short-term technical correction. Traders should remain alert for any confirmation signals that could precipitate a temporary reversal or consolidation phase.
Moreover, geopolitical developments, particularly involving U.S.-China trade relations and broader global tensions, remain significant risk factors. A notable rally in USD/CNH toward 7.1745 reinforces U.S. asset attractiveness, which could provide intermittent dollar strength, complicating EUR/USD’s immediate bullish path.
Strategically, traders holding bullish EUR/USD positions should consider employing tight stop-losses below key technical supports to safeguard against unexpected reversals. Conversely, traders considering short positions must await clear technical signals confirming exhaustion of bullish momentum, notably a sustained move below critical moving averages.
Conclusion
EUR/USD continues to reflect strong bullish momentum underpinned by weakening U.S. economic indicators, supportive technical factors, and dovish Federal Reserve expectations. While short-term consolidation or corrections are possible, the overall trend remains favorable for additional upside potential, targeting significant historical highs.