The EUR/USD exchange rate is in a bearish trend, with the pair trading at 1.1650, a significant drop from its monthly high of 1.1850. This downward movement is primarily driven by the surge in US and European bond yields, with the ten-year US bond yield reaching 4.63% and short-term yields soaring to 4.1%. The Federal Reserve's decision to maintain high interest rates for an extended period is a key factor in this trend, as indicated by the upcoming FOMC minutes publication. The US dollar index has also risen to nearly 100, further putting pressure on the EUR/USD pair.
The technical analysis of the EUR/USD pair reveals a bearish reversal pattern. The daily chart shows a small double-top formation, with the pair about to break below the neckline at 1.1658. Additionally, a large multi-month head-and-shoulders pattern has emerged, a classic bearish signal. The pair has already slipped below the 100-day moving average, confirming the bears' dominance. These technical indicators suggest a continued downward trend, with the pair potentially falling to the psychological level of 1.1500 and further to 1.1482, the head-and-shoulders neckline.
In my opinion, the EUR/USD pair is likely to continue its downward trajectory, driven by the strong bearish patterns and the Federal Reserve's monetary policy. The high bond yields and the US dollar's strength are significant factors that will likely keep the pair under pressure. However, the market's reaction to the pending home sales report may provide some short-term relief, but the overall trend remains bearish.
One thing that stands out is the potential for a deeper correction, as the pair approaches the psychological level of 1.1500. This level has been a significant support in the past, and a break below it could trigger a more aggressive sell-off. The head-and-shoulders pattern also suggests a deeper correction, with the neckline at 1.1482 being a critical level to watch.
In conclusion, the EUR/USD pair is in a bearish phase, and the technical analysis strongly suggests a continued downward movement. The Federal Reserve's policy and the strong US dollar are key drivers of this trend. Investors should be cautious and consider a sell position with a take-profit at 1.1500 and a stop-loss at 1.1750, as the pair could potentially fall further.
