US Dollar Forecast: EUR/USD Rally Sends RSI into Overbought Zone

US Dollar Outlook: EUR/USD

EUR/USD clears the December high (1.1140) as it rallies to a fresh yearly high (1.1174), with the recent rise in the exchange rate pushing the Relative Strength Index (RSI) into overbought territory for the first time this year.

US Dollar Forecast: EUR/USD Rally Sends RSI into Overbought Zone

The rally in EUR/USD may persist going into the Kansas City Fed Economic Symposium in Jackson Hole, Wyoming as the RSI holds above 70, and the exchange rate may further retrace the decline from the 2023 high (1.1276) as the Federal Reserve appears to be on track to switch gears later this year.

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According to the Federal Open Market Committee (FOMC) Minutes, ‘the vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,’ and the US Dollar may face additional headwinds ahead of the next Fed rate decision on September 18 should Chairman Jerome Powell and Co. take further steps to prepare US households and businesses for a rate-cut.

EUR/USD Chart – Daily

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

The rally in EUR/USD may persist as it extends the series of higher highs and lows carried over from last week, with a break/close above the 1.1270 (50% Fibonacci extension) to 1.1280 (61.8% Fibonacci retracement) zone opening up the 1.1430 (100% Fibonacci extension) to 1.1440 (61.8% Fibonacci extension) area.
However, the bullish price action in EUR/USD may unravel should it struggle to hold above the 1.1070 (23.6% Fibonacci retracement) to 1.1100 (78.6% Fibonacci retracement) region.
A move below the weekly low (1.1023) may push EUR/USD towards the 1.0940 (50% Fibonacci retracement) to 1.0960 (61.8% Fibonacci retracement) zone, with the next area of interest coming in around 1.0860 (50% Fibonacci retracement) to 1.0880 (23.6% Fibonacci extension).

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--- Written by David Song, Strategist

Follow on Twitter at @DavidJSong

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