EUR/USD Showing Recovery Signs But Facing Hurdles

Technical analysis of Forex market

Key Highlights

  • EUR/USD started an upside correction from the 1.0768 monthly low.
  • The pair climbed above 1.0850, but it is facing hurdles near 1.1000.
  • A key bullish trend line is forming with support near 1.0860 on the 4-hours chart.
  • The US Consumer Price Index declined 0.4% in March 2020 (MoM).

EUR/USD Technical Analysis

After a steady decline, the Euro found support above the 1.0750 area against the US Dollar. As a result, EUR/USD started an upside correction and recovered above the 1.0850 resistance.

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Looking at the 4-hours chart, the pair traded to a new monthly low at 1.0768 before correcting higher. It surpassed the 23.6% Fib retracement level of the main decline from the 1.1147 high to 1.0768 low.

Besides, there was a break above the 1.0900 level and the 100 simple moving average (red, 4-hours). Finally, it tested the 1.0960 resistance area (the previous support). It also coincides with the 50% Fib retracement level of the main decline from the 1.1147 high to 1.0768 low.

The key resistance is near the 1.1000 region, above which EUR/USD is likely to continue higher. The next major resistance is near the 1.1060 level, followed by 1.1080.

Any further gains could lead the pair towards the 1.1150 level in the near term. Conversely, the pair might struggle to continue above the 1.1000 resistance.

In the mentioned bearish case, the pair could decline again towards the 1.0850 support and a connecting bullish trend line. A successful close below 1.0850 is likely to restart downtrend towards 1.0750 in the near term.

Fundamentally, the US Consumer Price Index for March 2020 was released this past Friday by the US Bureau of Labor Statistics. The market was looking for a 0.3% decline in the CPI compared with the previous month.

The actual result was disappointing, as the US Consumer Price Index declined 0.4% in March 2020 (MoM). Looking at the yearly change, there was a 1.5% increase, down from the last 2.3%.

The report added:

A sharp decline in the gasoline index was a major cause of the monthly decrease in the seasonally adjusted all items index, with decreases in the indexes for airline fares, lodging away from home, and apparel also contributing. The energy index fell 5.8 percent as the gasoline index decreased 10.5 percent.

Overall, EUR/USD must gain strength above 1.0960 and 1.1100 to continue higher. Similarly, GBP/USD must settle nicely above 1.2500 for more upsides.

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