EUR/USD weakens, bearish reversal sustainable in the front view to the meeting of the Fed?

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By David Wagner – From 25 may to 5 June, the EUR/USD pair has shown an impressive rise, gaining more than 500 pips, which is approximately 4.7%, between a low of 1.0870 and a peak at 1.1383.

However, since the end of last week, this upward trend seems to falter, it the question of whether a correction is preparing seems to be becoming more and more relevant.

What is the primary reason for the increase of the EUR/USD ?

The first factor behind the rise of the Euro is the draft plan of european rescue in the face of the pandemic. This project, initiated by France and Germany and taken up by the European Commission, still has detractors, but it seems more and more likely that a plan is finally formed, although there is a risk of it being downgraded to appease the dissenters.

Anyway, the markets have bought the idea, and the pair EURUSD has benefited greatly. It has the same perms to remain impassive in the face of the enlargement are more important than-expected quantitative easing program from the ECB last week, a decision which should in theory weaken the single currency.

The other factor that has benefited the EUR/USD pair is the appetite for risk in general, which has diverted investors to the Dollar, considered a safe haven. However, a decline in the Dollar affects mechanically the EUR/USD pair to the upside.

That said, the technical analysis ?

From a technical point of view, it should be noted that in hourly data, the EUR/USD begins to test the upward trend line visible since the low of may 25, and is reluctant to hold above 1.13.

A failure to regain 1.13 on Tuesday, would involve graphically a break below the upward trend line above, which would be a negative signal, potentially putting it in line of sight to a target on the psychological threshold of 1.12.

The increase, the summit of the last week to 1.1380 and the psychological threshold of 1.14 form the next resistance to take into account if EUR/USD regained 1.13.

Next key factors to watch for

On Tuesday, investors will be left with few important statistics to take into account, from a new estimate of the GDP of the Euro Area at 11 a.m. and the report JOLTS on the job offers US to 16h.

However, the day of tomorrow could be a decisive factor, with the Fed meeting, although no monetary policy decision is anticipated.

Therefore, traders could play the caution and do not over-commit one way or in another on EUR/USD in expectation of the event.

In regard to this that it is possible to expect from the Fed, it should be noted that the excellent report NFP released last Friday involves a “risk” to see what the Fed is tinged with optimism, which could strengthen the Dollar and send EUR/USD in a more straightforward correction.

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