The euro (EUR) has declined against the US dollar (USD) for the third consecutive day as of Thursday, trading at 1.1663 and moving down from a weekly peak of 1.1755. A shift towards a more hawkish stance from the US Federal Reserve, combined with ongoing tensions in the Middle East, is propelling demand for the safe-haven US dollar, especially with euro zone inflation data and a monetary policy decision from the European Central Bank expected later today.
On Wednesday, the Fed decided to maintain interest rates in the range of 3.50% to 3.75%, as anticipated. However, this meeting saw more division among members than any since 1992, with three officials suggesting that the term “accommodative bias” might no longer be fitting due to surging energy prices.
Increasing government bond yields further support the US dollar
Market sentiment has shifted, now pricing in a nearly 50% possibility of a rate hike by the Fed in June, which has led to rising US Treasury yields and further bolstered the dollar.
Moreover, Federal Reserve Chairman Jerome Powell has indicated that, despite legal challenges involving US President Donald Trump, he intends to continue in his role through to the end of his term on May 15. Powell will succeed Stephen Milan, a Trump appointee, in 2025. Milan supported lower rates during Wednesday’s meeting, and Powell is expected to resist pressure from the administration to relax monetary policy when the new chairman, Kevin Warsh, takes over.
In Europe, market participants are monitoring the upcoming release of the euro zone’s preliminary first-quarter gross domestic product (GDP) and the April harmonized index of consumer prices (HICP), both of which are projected to show significant increases due to rising oil prices.
However, the primary focus today will be on the ECB’s monetary policy decisions. It seems likely the central bank will hold interest rates steady while awaiting clearer developments regarding the Middle East, but it may leave open the option for a potential rate increase in June or July.
Technical Analysis: Bears testing a vital support level
The EUR/USD pair is experiencing increasing bearish momentum, having breached the neckline of a bearish Head & Shoulders (H&S) pattern at 1.1675, and is now testing several support levels above 1.1645, where it had previously faced bearish pressure in mid-April.
Looking at the 4-hour chart, technical indicators are trending deeper into bearish territory. The Relative Strength Index (RSI) is nearing 34, indicating persistent downside pressure, while the Moving Average Convergence Divergence (MACD) histogram reflects a widening red bar.
A definitive drop below the April 8 intraday low around 1.1645 would confirm the H&S formation. The pair is expected to find some support in the 1.1630 range, where the 50% Fibonacci support of the March-April rally aligns with late March and early April highs. Meanwhile, the 61.8% Fibonacci retracement sits at 1.1583, and the H&S price target aligns with the April 6 low near 1.1500.
On the flip side, immediate resistance can be found at the previous support zone around 1.1675, followed by the high from Wednesday at 1.1720, and the previously mentioned weekly high of 1.1755.
