EUR/USD Price Forecast: Sees more downside towards 1.1500 following Double Top breakdown
- EUR/USD holds onto losses near two-month low of 1.1596 ahead of FOMC minutes.
- The US Dollar trades firmly due to multiple tailwinds.
- US Treasury Yields surge further as the Fed is unlikely to cut interest rates this year.
The EUR/USD pair trades vulnerably near the two-month low of 1.1596, posted on Tuesday, during the Asian trading session on Wednesday. The major currency pair faces selling pressure as the US Dollar (USD) trades firmly due to the combined efforts of the risk-aversion market theme and rising United States (US) Treasury Yields.
During the press time, S&P 500 futures extend their Tuesday losses to near 7,340, reflecting a risk-off market mood. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to its six-week high at 99.43.
Market sentiment turns risk-off amid fears that the war in the Middle East could resume if Iran doesn’t reach a deal with the US. On Tuesday, US President Donald Trump threatened to resume attacks on Iran in “two or three days” as part of the push for a deal to end the war, after he said he had just called off a US attack, Bloomberg reported.
Meanwhile, 10-year US Treasury Yields have posted a fresh over-a-year high at 4.91% as traders have priced out the possibility of interest rate cuts by the Federal Reserve (Fed) this year.
Going forward, investors will focus on the Federal Open Market Committee (FOMC) minutes of the April policy meeting and the Eurozone/US preliminary private sector PMI data for May.
EUR/USD technical analysis
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EUR/USD trades lower at around 1.1596 as of writing. The pair demonstrates a bearish near-term tone as spot holds below the 20-day exponential moving average (EMA) at 1.1684. The pair’s failure to stay above this dynamic barrier suggests rallies are still being sold amid a Double Top breakdown below 1.1660.
The Relative Strength Index (RSI) near 40 hints at lingering downside momentum rather than an imminent reversal.
On the topside, the 20-day EMA at 1.1684 is the first resistance that bulls would need to reclaim to ease immediate selling pressure and open the door to a deeper corrective bounce towards the May 13 high at 1.1742.
Looking down, the pair could slide further toward 1.1500 if it fails to hold the immediate cushion at 1.1592
(The technical analysis of this story was written with the help of an AI tool.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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