EUR/USD Showing Early Reversal Signs – EUR/USD Analysis & Prediction

Key Points

• EUR/USD has just printed a new 2024 high, but the US economy is expected to outperform Europe in the long run.
• Wednesday’s FOMC Meeting Minutes will likely be the warm-up for a highly-anticipated Jackson Hole Symposium.
• EUR/USD is showing signs of a bearish reversal, and the timing is critical.

Market Overview

This morning, EUR/USD printed a new 2024 high by trading up to 1.10890 as the dollar continued to slide lower. The move against the greenback has been aggressive and decisive since the weaker NFP report at the beginning of the month. Many people believe a recession is just around the corner.

Since then, the data hasn’t been that bad, with inflation ticking lower to 2.9% but retail sales soaring last month. This has spread a lot of confusion in the markets, but it now seems that a 50bps rate cut is unlikely. Yet, despite this “less dovish” shift, the dollar has continued to trade lower.

All Eyes Are On Jackson Hole

On Wednesday, the FOMC will release the meeting minutes from the previous interest rate decision. They will likely show the Federal Reserve gearing up to ease its tightening cycle with the first rate cut since March 2020, but the timing remains up for debate.

Therefore, this is a warm-up to the main event of the week, the Jackson Hole Symposium. Starting on Thursday, this three-day event will see central bank leaders worldwide meet in an annual conference at the Federal Reserve Bank of Kansas City.

All eyes will be on Jerome Powell when he delivers a speech in which hopefully more clarity is given about the timing of interest rate cuts. Although it is extremely unlikely he will dive into any specifics; he could very easily squash some of the predictions that traders see being priced in, such as at least one 50bps cut this year and at least 100bps worth of cuts before the year-end. If he does this, the US dollar might find some bids, as the selling looks increasingly overdone.

EUR/USD Showing Early Reversal Signs

The price of EUR/USD currently trades at 1.10800 and has made a decisive move to the upside in recent weeks, represented by the bullish market structure shown on the chart below.

However, despite the market’s two new higher highs on the higher timeframes, the relative strength indicator (RSI) has made lower highs. This is known as bearish divergence and is an early indication that the strength in this market is fading. As a result, EURUSD could be shaping up for a bearish reversal.

The sensible trader would now wait for the market structure to shift on the lower time frames to have more confidence that this is the top of EURUSD. Either way, it will be a fascinating back-end to the week for EURUSD.