Key Takeaways:
The euro is testing a critical support zone near $1.1400 as a bearish flag pattern on the four-hour chart keeps the pair under pressure ahead of US payroll data.
EUR/USD traded at $1.1385 during Asian hours Thursday, holding just above the lower boundary of a rising parallel channel at $1.1366 that has contained price action since mid-June. The pattern, which technical analysts interpret as a bearish continuation signal, suggests the pair's recent recovery from the year-to-date low of $1.1330 is a corrective move within a broader downtrend rather than the start of a sustained reversal.
"The formation of a bearish flag after a sharp decline points to further downside once the pattern resolves," said Fawad Razaqzada, market analyst at Forex.com. "As long as the Fed continues to emphasize price stability and the US economy shows few signs of slowing materially, rallies in EUR/USD may continue to attract sellers."
The Relative Strength Index at 42.5 and a slightly negative Moving Average Convergence Divergence reading reinforce the bearish near-term bias, according to FXStreet technical analysis. A break below the $1.1366 channel floor would open the path toward the $1.1335-1.1330 region, the lowest level since May 2025. On the upside, initial resistance sits at the upper channel boundary of $1.1451, ahead of the 200-period exponential moving average clustered around $1.1522.
The dollar's broader strength has been the dominant force behind the euro's decline. The US Dollar Index held at 101.34 on Wednesday after Federal Reserve Chair Kevin Warsh reinforced the central bank's hawkish stance at the European Central Bank's annual Sintra conference. Warsh said the Fed is "in the price stability business" and offered no forward guidance, maintaining the tone set at his first Federal Open Market Committee meeting in June, where the updated Dot Plot signaled a higher-for-longer rate path.
Core PCE inflation remains elevated at 3.4% year-on-year, well above the Fed's 2% target, while markets now price at least one rate hike this year, with the first potentially arriving as soon as September. The dollar has also extended gains against the yen, reaching a 40-year high near JPY162.85, with Japanese officials reiterating their readiness to intervene.
Eurozone data has done little to shift the dynamic. Headline inflation slowed to 2.8% in June from 3.2%, and core inflation also eased, driven by lower energy prices. European Central Bank President Christine Lagarde has signaled the central bank no longer needs to be as aggressive as during the height of the inflation surge, but policymakers remain reluctant to declare victory given persistent wage pressures.
The next major test for EUR/USD comes with the US nonfarm payrolls report due Thursday. A strong reading would reinforce the narrative of a resilient US labor market and keep the Fed on its tightening path, potentially pushing the euro below $1.1366 and toward the $1.1300 handle. Consensus estimates point to another solid jobs print, following last month's report that showed continued hiring momentum despite elevated interest rates.
The ISM manufacturing survey, also due Thursday, will provide additional clues on the health of the US economy. If manufacturing activity remains in or near expansion territory, it would add to evidence that economic momentum is proving more resilient than many had expected earlier this year, further supporting the dollar.
From a positioning perspective, a break below $1.1330 would mark a new year-to-date low for EUR/USD and could accelerate selling toward the $1.1200 area, a level not seen since early 2025. Conversely, a weak payrolls number that revives rate-cut expectations could trigger a short-covering rally toward the $1.1451 resistance, though the broader technical structure favors sellers until the pair reclaims the $1.1522 level.
This article is for informational purposes only and does not constitute investment advice.
