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HomeMarket analysisEUR/USD Set for Positive Month as Dollar Rally Stalls

EUR/USD Set for Positive Month as Dollar Rally Stalls

By Capital.com Research Team

With EUR/USD set to post its first positive month of the year, let’s take a look at why the dollar rally has faltered, the key levels to watch, and the trend continuation pattern emerging on lower timeframes.

Dollar Rally Falters

The rally in the US dollar has faltered in recent weeks as traders bet on falling inflation giving the Federal Reserve more room to cut interest rates. After rising as much as 5% this year by mid-April, the dollar is now experiencing its first down month of 2024. This shift followed the latest inflation data, which aligned with forecasts and showed a decrease in consumer price growth, easing concerns that the Fed might need to raise rates further to control inflation. As a result, traders are now expecting the Fed to implement two quarter-point rate cuts this year, leading to a 1.4% drop in the dollar this month despite a partial rebound.

EUR/USD Daily Candle Chart: Keltner Channel Ping Pong

EUR/USD is set to post its first positive month of the year. The Keltner Channels have contained its price action so far in 2024 with prices bouncing off channels like a ping pong ball. Having bounced from the bottom channel in April, EUR/USD has rallied towards the top of the Keltner Channel, breaking and closing above a descending trendline that intersected the January and March highs. The 20-day EMA, which is the basis of the Keltner Channel (middle line), has risen towards the top of the broken trendline, potentially attracting buying pressure should EUR/USD’s uptrend resume.

EUR/USD Daily Candle Chart

(Past performance is not a reliable indicator of future results)

EUR/USD 4hr Candle Chart: Bull Flag Forming

Drilling down to the 4-hour candle chart reveals that EUR/USD is building momentum. Mapping the series of higher swing lows forms a bullish trendline fan, signalling increasing momentum. Recent price action has seen EUR/USD pull back, forming a small descending retracement channel or bull flag. This bullish consolidation pattern can be used by swing traders to time entries into long positions.

EUR/USD 4hr Candle Chart

(Past performance is not a reliable indicator of future results)

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