US Dollar Forecast: EUR/USD Pullback Keeps RSI Out of Overbought Zone

US Dollar Outlook: EUR/USD

EUR/USD snaps the recent series of higher highs and lows to keep the Relative Strength Index (RSI) out of overbought territory, but the exchange rate may stage further attempts to test the March high (1.0981) amid the limited response to the negative slope in the 50-Day SMA (1.0857).

US Dollar Forecast: EUR/USD Pullback Keeps RSI Out of Overbought Zone

Keep in mind, EUR/USD broke above the monthly opening range to clear the April high (1.0885), and the exchange rate may preserve the advance following the downtick in the US Consumer Price Index (CPI) as it trades near the monthly high (1.0895).

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US Economic Calendar

FOREX.com Economic Calendar

Looking ahead, fresh remarks from Federal Reserve officials may sway EUR/USD as the Federal Open Market Committee (FOMC) plans to ‘slow the pace of decline in our securities holdings,’ and it remains to be seen if the central bank will respond to the recent data prints as Chairman Jerome Powell and Co. ‘do not expect that it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent.’

In turn, Fed officials may stick to a similar script as the FOMC acknowledges ‘a lack of further progress toward our 2 percent objective,’ and the upcoming speeches may drag on EUR/USD should the central bank show a greater willingness to keep US interest rates higher for longer.

However, the Fed speeches may reveal a dissent within the FOMC amid concerns of a slowing economy, and hints of a looming change in regime may keep EUR/USD afloat if the authorities prepare US households and businesses for a less restrictive policy.

With that said, developments coming out of the Fed may sway EUR/USD as the central bank promotes a data-dependent approach in managing monetary policy, but the exchange rate may continue to pullback from the monthly high (1.0895) as it fails to extend the recent series of higher highs and lows.

EUR/USD Chart – Daily

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

• EUR/USD cleared the April high (1.0885) as it pushed above the opening range for May, with a break/close above the 1.0940 (50% Fibonacci retracement) to 1.0960 (61.8% Fibonacci retracement) region bringing the March high (1.0981) on the radar.
• However, EUR/USD has snapped the recent series of higher highs and lows to keep the Relative Strength Index (RSI) below 70, and lack of momentum to hold above the 1.0860 (50% Fibonacci retracement) to 1.0880 (23.6% Fibonacci extension) area may push EUR/USD back towards 1.0770 (38.2% Fibonacci retracement).
• Failure to defend the monthly low (1.0650) may lead to a test of the 1.0610 (38.2% Fibonacci retracement) to 1.0640 (23.6% Fibonacci retracement) region, with a breach below the April low (1.0601) opening up the November low (1.0517).

Additional Market Outlooks

US Dollar Forecast: AUD/USD Rally Pushes RSI Towards Overbought Zone

US Dollar Forecast: USD/JPY Extends Rebound from 50-Day SMA

--- Written by David Song, Strategist

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