EUR/USD Rate Rebound Pulls the RSI out of Oversold Territory

USD trades at a new weekly high (1.1955), as Fed Chairman Jerome Powell gives dovish forward guidance to US lawmakers. The exchange rate could stage a bigger rebound over the rest of the week as Relative Strength Index(RSI) bounces from oversold territory to signal a textbook buy signal.

EUR/USD Rate Rebound Pulls the RSI out of Oversold Territory

EUR/USD RATE PULLS RSI OUT of OVERSOLD TERRITORY

EUR/USD could continue to fall following the Federal Reserve interest-rate decision. This extends the series a higher highs and lowers since the beginning of the week. However, fresh data prints from the US economy could rattle the recent rebound in exchange rate. The Core Personal Consumption Expenditure Price Index (PCE Price Index) is expected to increase for the third consecutive monthly.

The Fed's preferred indicator of inflation is expected to rise to 3.4% in April from 3.1% per year in April. This would be the highest reading since 1992. However, persistent signs that prices are rising may force the Federal Open Market Committee to adjust its forward guidance. The central bank currently forecasts that the economy will grow 7.0% by 2021.

The FOMC could also start to talk about an exit strategy, as officials continue to improve their economic outlook. However, Chairman Powell's testimony suggests that the Fed is not in a hurry to change gears. He tells US lawmakers that inflation is "expected to drop back towards our longer-term goal".

Powell, on the other hand, insists that the Fed "will do everything possible to support the economy for so long as it takes for the recovery to be complete." It seems like the FOMC will follow the same formula at its next interest rate decision on July 28, as the central bank prepares for a temporary rise in inflation.

EUR/USD could see a bigger rebound from the monthly low (1.1847), as it extends its bullish price series starting at the beginning of the week. However, the recent shift in retail mood looks set to continue as the exchange rate trades under the 200-Day SMA (1.1993), for the first time since April.

The IG Client Sentiment Report shows that 59.03% are net-long EUR/USD traders, with the ratio between traders long and short at 1.44 to 1.

Today's net-long traders are 9.31% more than yesterday, 40.50% higher than last week, and 8.86% less than yesterday. Last week's net-short traders were 35.05% lower than last week and 35.00% lower than yesterday. EUR/USD continues its rebound from the monthly low (1.1847) and the net-long position is up. However, the sharp decline of net-short has fuelled the tilt in retail sentiment. 57.24% traders were net long the pair at last week's end.

It remains to be seen if this decline from January's high (1.2350) is a correction in the broader market trend or a change of market behavior. EUR/USD attempts retrace its decline following the Fed Rate Decision. The exchange rate could stage a bigger rebound over the rest of the week as EUR/USD bounces back from oversold territory. This would indicate a classic buy signal.

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