EUR/USD Bounces From 13-Month Low, but Bearish Backdrop Endures

Bounce from the abyss: Euro claws back above 1.14

EUR/USD snapped a string of losses on Friday, rising above 1.1400 after dipping to its weakest level in 13 months near 1.1350 earlier in the week. The move came despite sticky US inflation data that would normally fuel dollar demand. Instead, traders booked profits on long-dollar positions, a pattern Forexlive described as "late week dollar selling." Lower crude oil prices also offered the euro a reprieve, easing some pressure on the energy-import-heavy currency.

The advance pushed the pair through its falling 100-hour moving average around 1.1398, a short-term threshold that had capped rallies for days. The question now is whether that break is enough to fuel a run toward the 200-hour MA, a level that has defined the broader bearish structure since early June. A decisive close above it would signal that the correction might extend. A failure, and the downtrend resumes.

Fundamentals still favour the dollar

Beneath the surface, the fundamental picture remains overwhelmingly dollar-positive. The May PCE price index, the Fed's preferred inflation gauge, rose 0.4% month-on-month and 4.1% year-on-year, matching expectations and underscoring the persistence of price pressures. Consumer spending also accelerated, according to the Bureau of Economic Analysis, reinforcing the view that the US economy's resilience merits a hawkish Fed.

That's a problem for the euro. While the European Central Bank has its own inflation challenges, the growth gap between the US and the eurozone has widened. German sentiment improved only slightly, and the bloc faces headwinds from geopolitical tension, the so-called Hormuz risks flagged by some analysts add a safe-haven bid to the dollar. UBS has turned more bullish on the greenback, expecting it to stay supported through the third quarter as markets price in a "higher for longer" Fed. Their EUR/USD forecast has been trimmed; the pair may struggle to reclaim even 1.17 by year-end, as Investec's revised outlook suggests.

Technical landscape: consolidation or dead-cat bounce?

UOB's latest assessment labels the recovery as consolidation after a sharp decline, not a trend reversal. That fits the price action: EUR/USD has yet to break any meaningful structural resistance. The daily chart remains littered with lower highs and lower lows. Support at 1.1300, which ING sees holding initially, becomes the line in the sand. A break below that would open the door to levels not seen since late 2025.

On the hourly frame, watch the 200-hour moving average, which sits between 1.1420 and 1.1450. A push above it could trigger a squeeze toward 1.1500. But failure here likely sends the pair back to the 1.1350 low, perhaps even undercutting it if next week's data stays supportive for the dollar. The US Dollar Index is also showing mixed signals, with some modest profit-taking after a strong rally, but the broader uptrend remains intact.

How TradeVisor reads the cross-currents

TradeVisor's AI models synthesize momentum, sentiment, and macro divergences to gauge whether the current bounce has legs. The platform tracks real-time reactions to inflation prints, central bank rhetoric, and technical breaks. Right now, the signal mix is cautious: the dollar's fundamental edge is intact, but oversold conditions and profit-taking create a noisy short-term environment. Traders should watch the 200-hour MA closely, a rejection there validates the sell-on-rallies strategy; a clean break forces a reassessment.

The euro's fate rests on whether upcoming eurozone data can reverse the narrative of divergent growth, or whether the Fed's resolve keeps the dollar bid. Rallies remain suspect until the technical damage from June is repaired.