The chart above indicates quite strikingly the size and strength of the EUR/USD rally since mid-January. This shows how the single currency surged off the multi-year lows just below 1.0200 to well over 1.1500 two months later.
The corollary of this is the slump in the US dollar over the same period. The euro’s rally came as the daily MACD showed it trading at oversold levels. Yet the speed of the move took many by surprise, as did the manner in which it surged through significant resistance around 1.1200, marked by the two blue ellipses and the blue rectangle on the above chart.
That surge coincided with the slump in the dollar after President Trump rolled back on his ‘Liberation Day’ reciprocal tariffs from the beginning of April. By that stage, it seemed that investors had completely lost confidence in the Trump administration, driving the world’s reserve currency down, and the euro up, to levels last seen in October 2021.
As the daily MACD (highlighted in red) shows, by the third week in April the EUR/USD was extremely overbought. Since then, the pair has reversed direction, dropping back sharply. It is currently approaching 1.1200 again, this time from above, and it looks as if it may retest this area as support.
Source: TN Trader
Will it break below here? Of course. Anything is possible. But it may prove a lot more difficult than it was to break above here. The MACD shows that the euro is nowhere near as overbought as it was three weeks ago, suggesting a loss in downside momentum.
On the flip side, it sounds as if the US Federal Reserve is in no hurry to cut rates further, which could support the dollar. Perhaps we’ll know more after we hear from the numerous FOMC members due to deliver speeches today.
