EUR/USD — At the Crossroads of Monetary Expectations

Fundamental Background

The fundamental backdrop for EUR/USD in early May is shaped by diverging monetary policy expectations on both sides of the Atlantic. At its 30 April meeting, the ECB left interest rates unchanged; however, Governing Council members Joachim Nagel and Peter Kazimir signalled the possibility of a rate hike as early as June amid persistent inflationary pressure. Meanwhile, the Federal Reserve has maintained rates within the 3.50–3.75% range without giving clear indications of imminent easing, while US inflation stood at 3.3% year-on-year in March.

Tensions in the Strait of Hormuz continue to keep oil prices near four-year highs, increasing inflation risks for the import-dependent eurozone. An additional pressure factor is the possibility of Washington raising tariffs on European cars to 25%.

Technical Picture

On the daily chart, EUR/USD appears to have formed and completed an inverted head-and-shoulders pattern in March. The neckline of the formation is positioned above the point of control (POC) of the horizontal volume profile, and the breakout above this neckline may have triggered a rally towards the 1.1850 area. The profile spans the 1.1440–1.1690 range, while the POC zone at 1.1550–1.1570 — representing the highest concentration of horizontal volume during the analysed period — may act as the main support area for the current market structure.

Following the pullback from 1.1850, the pair continues to trade above the upper boundary of the profile. The 1.1850 level could be the nearest significant resistance, while 1.1400 may serve as a deeper support level for the entire profile zone. The RSI + MAs indicator shows readings of 56, 52 and 53: RSI remains above both moving averages, indicating a moderate advantage for buyers without clear signs of strong momentum.

Key Takeaways

The fundamental backdrop remains mixed: expectations of tighter ECB policy may continue to support the euro, while energy-related risks and weak eurozone growth could be limiting bullish momentum. From a technical perspective, the key factor may be whether price can hold above the POC zone and the 1.1690 level — a condition that could help sustain the bullish trend.

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