EUR/USD forecast: April 2022 high offers resistance

EUR/USD Outlook

EUR/USD cleared the February high (1.1033) last week to register a fresh yearly high (1.1076), but lack of momentum to breach the April 2022 high (1.1076) may lead to a near-term pullback in the exchange rate as it snaps the recent series of higher highs and lows.

EUR/USD forecast: April 2022 high offers resistance

EUR/USD is under pressure on the back of US Dollar strength, and it seems as though the Federal Reserve will continue to combat inflation as Governor Christopher Waller insists that ‘monetary policy needs to be tightened further.’

At the same time, Fed Governor Waller warns that ‘monetary policy will need to remain tight for a substantial period of time, and longer than markets anticipate,’ and the comments suggest the Federal Open Market Committee (FOMC) is in no rush to switch gears as inflation remains well above the central bank’s 2% target.

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Source: CME

In turn, the CME FedWatch Tool now reflects a greater than 80% probability for another 25bp rate hike, and the Greenback may stage a larger recovery ahead of the next FOMC rate decision on May 3 amid growing speculation for higher US interest rates.

Nevertheless, the recent weakness in EUR/USD may end up being temporary as the European Central Bank (ECB) keeps the door open to implement a more restrictive policy, and it seems as though the central bank will retain the current course for monetary policy as Governing Council member Robert Holzmann emphasizes that ‘the persistence of inflation currently argues for another 50 basis points.’

Holzmann goes onto say that ‘if we do not act vigorously enough now, the inflation problem will only increase,’ and it seems as though interest rates in the Euro Area will rise at a faster pace than compared to the US as the FOMC appears to be nearing the end of its hiking-cycle.

With that said, the Euro may outperform its US counterpart over the coming months, but the failed attempts to breach the April 2022 high (1.1076) may lead to a near-term pullback in the exchange rate as it snaps the recent series of higher highs and lows.

Euro Price Chart – EUR/USD Daily

Chart Prepared by David Song, Strategist; EUR/USD on TradingView

EUR/USD cleared the February high (1.1033) to register a fresh yearly high (1.1076), but lack of momentum to breach the April 2022 high (1.1076) has pushed the exchange rate back towards the 1.0880 (23.6% Fibonacci extension) to 1.0940 (50% Fibonacci retracement) region as it snaps the series of higher highs and lows from last week.
Failure to defend the monthly low (1.0788) may lead to a test of the 50-Day SMA (1.0747), with the next area of interest coming in around 1.0610 (38.2% Fibonacci retracement).
Need a break/close above the 1.1070 (23.6% Fibonacci retracement) to 1.1090 (38.2% Fibonacci extension) region to open up the March 2022 high (1.1233), with the next area of interest coming in around 1.1270 (50% Fibonacci extension) to 1.1280 (61.8% Fibonacci retracement).

Additional Resources:

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--- Written by David Song, Strategist

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