EUR/USD Forecast: A technical rebound looks likely

EUR/USD kicks in the week on a firmer footing considering the sharp Fed-induced selloff in place since late last Wednesday, all after the Committee delivered an unexpected hawkish message and expectations are now favouring higher rates at some point in late 2023 (or before?).

EUR/USD lost more than 2%, or nearly 3 cents, on its way down from last Wednesday’s tops to the so far contention region in the mid-1.1800s. The steep decline, however, was amidst the pick-up in the German 10-year yields to the area below -0.20%, while their US counterpart keep the steady course around 1.40%.

The moderate rebound in the shorter end of the US yield curve, however, favoured a wider spread vs. the German peer following the FOMC event and looks like a more reliable driver of the recent pullback in spot for the time being.

Another key factor behind the leg lower in the pair comes in from the speculative community, where the long EUR trade became crowded on the back of the rising optimism around the economic recovery, in turn fuelled further by the firmer pace of the vaccine campaign and the return to the pre-pandemic life-style.

However, the current oversold condition of EUR/USD, as per the daily RSI (25.88), hints at the idea that a probable rebound could be shaping up in the next sessions.

That said, there is a couple of minor resistance levels to be considered, both at Fibo retracements at 1.1887 and 1.1976 and ahead of the more significant hurdle at the critical 200-day SMA, today at 1.1992. Further north comes in the psychological yardstick at 1.20 the figure. Above the 200-day SMA, the selling pressure is expected to mitigate somewhat.