EUR/USD's rebound appears corrective rather than a trend reversal as a bearish flag pattern and widening US-Eurozone policy divergence reinforce the broader bearish outlook.
Key takeaways
- A widening Fed-ECB policy gap continues to favour the US dollar, keeping pressure on EUR/USD.
- EUR/USD’s recent rebound resembles a bearish flag, suggesting the broader multi-week downtrend remains intact.
- A break below 1.1385 may expose 1.1325 and 1.1225, while 1.1510 remains the key resistance.
The recent 7-day rebound of 1.3% in EUR/USD, from its 52-week low of 1.1325 on 24 June 2026 to an intraday high of 1.1473 on 2 July 2026, does not provide sufficient evidence that the medium-term downtrend from the 28 January 2026 high has been terminated.
Let’s uncover the latest fundamental and technical factors supporting a potential multi-week bearish trend still inherent in EUR/USD.
Eurozone/US implied interest rate policy curve spread has flattened
Fig. 1: Eurozone-US implied interest rate policy curve spread with EUR/USD as of 3 Jul 2026 (Source: MacroMicro). The information presented is historical information, and past performance is not indicative of future performance.
The monthly implied future policy interest rate curves for the Eurozone and the US are calculated using short-term interest rate futures that are highly sensitive to the expectations on these countries’ central banks’ monetary policies.
The current Eurozone/US implied interest rate policy curve spread for the period from July 2026 to December 2026 has flattened significantly versus three months ago, with the current December 2026 reading at -1.62% versus -0.96% three months ago (see Fig. 1).
These observations suggest that the ECB is likely to be less hawkish or more dovish than the Fed, which in turn could support a softer EUR/USD.
EUR/USD is oscillating within a bearish flag configuration
Fig. 2: EUR/USD medium-term trend as of 6 Jul 2026 (Source: TradingView). The information presented is historical information, and past performance is not indicative of future performance.
The recent rebound in EUR/USD from its 52-week low of 1.1325 on 24 June 2026 has taken the form of a potential “bearish flag” configuration, which may suggest only a pause in its medium-term downtrend (see Fig. 2).
In addition, the 4-hour RSI momentum indicator has started to reverse down after it came close to a horizontal resistance at around the 66 level, which implies that upside momentum has abated.
Watch the 1.1510 key medium-term pivotal resistance, and a break below 1.1385 intermediate support (the lower boundary of the “bearish flag”) exposes the medium-term supports at 1.1325 and 1.1225.
However, a daily close above 1.1510 invalidates the bearish tone, opening the door to a potential extension of the corrective rebound toward the next medium-term resistance at 1.1610 (also close to the 50-day moving average).
This article and its contents are intended for educational purposes only and should not be considered trading advice.
