EURUSD has faced selling pressure since the start of May, despite the hawkish speeches from ECB members throughout the month. One possible reason for this is the decreasing odds of a FED debt ceiling crisis, as both Biden and McCarthy have been giving optimistic signals. Logan’s speech about the “case for pausing interest rate increases not yet being clear” caused a mini shock to the markets as well. Until yesterday, there were no expectations of a rate hike; only rate cuts were anticipated for the year. However, this expectation may now be changing, or at least the expectation of a rate cut may be reduced. Another factor could be the weakness of the yen and yuan, which has been fueling the dollar index for several weeks.

Overall, EURUSD has retraced to the 8-month-long trendline, which appears to be a healthy pullback for now. The trend is still intact, and as long as it holds, downward moves can be seen as buying opportunities. The MACD-MACD signal spread is also providing a positive signal for a minor jump, as whenever the spread falls close to -0.0035, EURUSD has reacted with an upward movement in the past year, except for February.

Despite the positive technical outlook, there are some concerns for EURUSD bulls. Net EURUSD non-commercial positions in the futures market have skyrocketed in recent months, which could be an early warning sign of a “long squeeze.” You can refer to one of our earlier posts for details and check our weekly COT Report updates for further information. Another concern is the gap between FED members’ rate forecasts and the market pricing for rates, which is gradually closing and pushing the dollar index higher.

A possible break of the trend could lead to increased downward pressure. Two possible targets for downward movements in the short term are 1.0680 and 1.0460.