EUR/USD: Watch price action - OCBC

Euro (EUR) drifted lower after rising to >3Y high of 1.1570 levels last week. De-escalation in tariff angst somewhat slowed USD's decline and helped to moderate the pace of rally in EUR. EUR was last seen at 1.1390 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

2-way trades are likely

"To add, ECB rhetoric also turned more dovish. ECB's Villeroy said that inflation risks seem to have abated, and that ECB can respond quickly to new data. Rehn said that he sees downside risks to the region's inflation outlook and that the value of EUR is important in assessing policy. He earlier added that ECB should keep lowering interest rate at its next meeting in June if forecasts show eurozone inflation falling below the ECB's 2% target. He also said that ECB should not rule out larger interest rate cuts. Knot also said that 'In the short term, it's 100% clear that the demand shock will dominate, so inflation will go down'."

"ECB Chief Economist Lane said that there is no reason to say that a 25bp move is always the default although he would not pre-commit to any rate path. He also warned that EUR's strength is weighing on the region's economic recovery via disinflation. On the other hand, Kazaks said ECB should only lower rates into accommodative territory if growth outlook deteriorates much further. He added that while US tariff policies may slow down inflation and even cause a recession, visibility about the next developments is low and cutting too much would squander policy space."

"Daily momentum is flat while recent decline in RSI showed tentative signs of slowing. 2-way trades likely as we watch for signs of breakout/rejection. Resistance at 1.1490, 1.1570 levels (recent high). Decisive break out of recent high should see another leg higher in EUR towards 1.17 levels. However, failure to break out may point to an interim bearish reversal (as head and shoulders pattern may play out). Support at 1.1280, 1.1200/35 (21 DMA, 23.6% fibo retracement of 2025 low to high) before 1.11, 1.1030 levels (38.2% fibo)."