EUR/USD Breakout Stalls As RSI Reverses Ahead Of Overbought Territory

EUR/USD Rate Talking Points

EUR/USD appears to be reversing course ahead of the February high (1.2243) as it gives back the advance following the Federal Reserve interest rate decision, with the exchange rate initiating a series of lower highs and lows as the Relative Strength Index (RSI) pulls back ahead of overbought territory.

EUR/USD Breakout Stalls as RSI Reverses Ahead of Overbought Territory

EUR/USD extends the decline from the monthly high (1.2150) after showing a limited reaction to the Euro Area’s Gross Domestic Product (GDP) report, and the exchange rate may continue to depreciate in the first week of May as the bullish momentum seems to be abating. Keep in mind, the broader outlook for EUR/USD is more constructive as it cleared the March high (1.2113) to break out of the descending channel from earlier this year. 

It remains to be seen if the exchange rate will continue to retrace the decline from earlier this year as the Federal Open Market Committee (FOMC) stays on track to “increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month.”

Image of DailyFX economic calendar for Euro Area

The European Central Bank (ECB) may follow a similar path as the Euro Area faces a double-dip recession, with the GDP report showing a 0.6% contraction in the first quarter of 2021 following the 0.7% decline during the previous period.

In turn, the ECB may continue to strike a dovish forward guidance at its next meeting on June 10, as the central bank relies on its emergency measures to combat the downside risks surrounding the monetary union. The Euro may face headwinds ahead of the second half of the year as “the Governing Council expects purchases under the PEPP (pandemic emergency purchase program) over the current quarter to continue to be conducted at a significantly higher pace than during the first months of the year.”

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