Extreme Oversold Conditions May Spark a Bullish Relief Rally in EURUSD

Manuel

Central Bank

Economic

Summary:

A transition into a positive histogram would provide the necessary confirmation for a tactical bullish correction,.

BUY EURUSD

EXP

TRADING

1.15798

Entry Price

1.17450

1.14850

1.16349 +0.00233 +0.20%

0.0

Pips

Flat

1.14850

Exit Price

1.15798

Entry Price

1.17450

Yannis Stournaras, a prominent member of the European Central Bank (ECB) Governing Council and Governor of the Bank of Greece, emphasized during a recent interview with Reuters that the central bank must maintain a high degree of policy flexibility. He noted that the intensifying conflict involving the United States, Israel, and Iran introduces significant variables that mandate a nimble approach to monetary strategy. This sentiment complements recent remarks from ECB President Christine Lagarde, who, in her February 26 testimony before the European Parliament’s ECON Committee, expressed continued confidence that inflation would eventually stabilize at the 2% medium-term target. Lagarde firmly reiterated the institution's commitment to a strictly "data-driven approach" in determining the future path of interest rates.

However, the latest data from Eurostat suggests that the path to price stability remains arduous. The annual Consumer Price Index (CPI) accelerated to 1.9%, overshooting both the previous reading and the consensus forecast of 1.7%. Even more concerning for policymakers was the Core Inflation print—which strips out volatile food and energy costs—surging to a three-month high of 2.4%, significantly higher than the anticipated 2.2%. On a month-over-month basis, the figures were equally striking: headline inflation grew by 0.7%, a sharp reversal from the 0.6% contraction seen in January, while the core reading advanced by 0.8%, far exceeding the 0.2% projected by market analysts.

Across the Atlantic, Neel Kashkari, President of the Minneapolis Fed, addressed these concerns at the Bloomberg Invest Conference. Kashkari noted that while the war in Iran could materially impact monetary policy, it remains premature to determine the exact extent of its inflationary footprint. His sentiment aligns with Federal Reserve Governor Stephen Miran, who recently offered a cautiously optimistic view of the U.S. financial landscape. Miran argued that the banking sector is currently "over-regulated," which may be stifling credit creation, though he characterized the labor market as significantly improved. Interestingly, Miran posited that the long-term integration of Artificial Intelligence would eventually act as a "profoundly disinflationary" force.

The minutes from the January FOMC meeting further reinforced this patient approach. With several members favoring a "higher-for-longer" stance until inflation sustainably targets 2%, the CME FedWatch Tool now suggests a prolonged pause through March and April. Consequently, the probability of a June rate cut has diminished significantly as markets recalibrate to a more hawkish reality. Geopolitical risks reached a fever pitch this week as Iran continued to deploy missile and drone strikes across the Persian Gulf. A drone strike on the U.S. Embassy in Riyadh marked a severe escalation, followed by the IRGC's effective declaration to close the Strait of Hormuz—a critical maritime chokepoint.

In response to these escalations, U.S. Secretary of State Marco Rubio has indicated that Washington is preparing for a "major increase" in strikes within Iran over the next 24 hours. This follows President Donald Trump’s warning that a "big wave is coming," underscoring the risk of a protracted conflict. Consequently, the State Department has urged all U.S. citizens to depart the Middle East immediately due to grave security threats. Extreme Oversold Conditions May Spark a Bullish Relief Rally in EURUSD_1

Extreme Oversold Conditions May Spark a Bullish Relief Rally in EURUSD_1

Technical Analysis

From a technical perspective, EUR/USD has been subjected to a relentless bearish impulse, recently flushing to an intraday low of 1.1530 amidst extreme volatility in the U.S. sessions. However, the pair staged a rapid recovery, reclaiming the 1.1580 resistance-turned-support level. This price action resulted in the formation of a "Doji Star" candlestick pattern—characterized by a small body and a long lower shadow—which frequently appears at the terminal stage of a trend as a precursor to a reversal.

Should the bulls successfully defend this zone, we anticipate a corrective rally toward the 1.1745 handle, which represents the next major structural resistance and aligns closely with the primary descending trendline initiated on January 27.

Our momentum analysis via the RSI reinforces the case for an upside correction, as the indicator recently plummeted to a reading of 21. This represents extreme oversold territory, suggesting that the selling pressure has reached a point of technical exhaustion.

Simultaneously, while the MACD remains in bearish territory, the histogram has begun to print progressively smaller negative bars. This "momentum fade" indicates that the downward velocity is decelerating. A transition into a positive histogram would provide the necessary confirmation for a tactical bullish correction, allowing the pair to breathe before establishing a more solid directional bias.

Trading Recommendations

Trading direction: Buy

Entry price: 1.1580

Target price: 1.1745

Stop loss: 1.1485

Validity: Mar 13, 2026 15:00:00

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Extreme Oversold Conditions May Spark a Bullish Relief Rally in EURUSD

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