EUR/USD Price Analysis: Trades with a mild negative bias, bullish potential seems intact

• EUR/USD edges lower on Wednesday and moves further away from the YTD peak.
• The overbought RSI on the daily chart is seen as a key factor acting as a headwind.
• The technical setup favours bullish traders and supports prospects for further gains.

The EUR/USD pair struggles to gain any meaningful traction on Wednesday and oscillates in a narrow trading band, above the 1.1200 mark through the Asian session.

European Central Bank (ECB) officials delivered mixed signals regarding the next policy moves after the July meeting, which led to a significant decline in the German yields on Tuesday and in turn, is seen undermining the shared currency. The US Dollar (USD), on the other hand, struggles to capitalize on the overnight bounce from its lowest level since April 2022 amid growing acceptance that the Federal Reserve (Fed) will soften its hawkish stance. This is holding back traders from placing bearish bets around the EUR/USD pair and positioning for an extension of the previous day's modest pullback from the 1.1275 region, or the highest level since February 2022.

From a technical perspective, the range-bound price action witnessed over the past four days constitutes the formation of a rectangle on short-term charts. Against the backdrop of the recent rally from the 100-day Simple Moving Average (SMA), this might still be categorized as a bullish consolidation phase. That said, the Relative Strength Index (RSI) on the daily chart is flashing overbought conditions and acting as a headwind for the EUR/USD pair. Nevertheless, the setup still favours bullish traders and suggests that the path of least resistance for spot prices is to the upside. Hence, any subsequent pullback might still be seen as a buying opportunity and remain limited.

The weekly low, around the 1.1200 mark, is likely to protect the immediate downside. Sustained weakness below could trigger a fresh bout of technical selling and drag the EUR/USD pair towards the 1.1145 support zone. Some follow-through selling could pave the way for additional losses, though is likely to get bought into near the 1.1100 round figure. The latter should act as a strong base for spot prices, which if broken decisively would negate the near-term positive outlook.

On the flip side, the 1.1245-1.1250 region, followed by the multi-month peak, around the 1.1275 zone, now seem to pose immediate resistance ahead of the 1.1300 round-figure mark. The next relevant hurdle is pegged near the 1.1335 area, above which the EUR/USD pair could aim to reclaim the 1.1400 mark and climb further towards the 1.1450 region en route to the 1.1500 psychological mark, or the 2022 yearly peak.

EUR/USD 1-hour chart

Key levels to watch