Overbought Conditions and Strong Resistance May Trigger a Pullback

Summary:

Their close proximity to the key Fibonacci retracement levels significantly increases the probability of a corrective move toward this region.

SELL EURUSD

Close Time

CLOSED

1.17850

Entry Price

1.16300

1.18400

1.16521 +0.00160 +0.14%

77.9

Pips

Profit

1.16300

1.17071

Exit Price

1.17850

Entry Price

1.18400

Last Wednesday, the Federal Reserve (Fed) announced a 25 basis point (bps) cut to interest rates, a move made even as US inflation holds near the 3% mark. The central bank's communication was arguably more critical than the cut itself: the Fed strongly signaled a likely pause in its easing cycle. Chair Jerome Powell underscored this pivot, declaring the Fed is now operating in a "wait-and-see" mode, maintaining that current rates align with the upper bound of "neutrality" estimates.

Powell candidly addressed the inherent trade-offs within the Fed’s dual mandate. With policy having already been eased by 75 bps this year, he asserted that the central bank is "well positioned" to assess future economic developments. He concluded that after the total 175 bps of cuts implemented, monetary policy has been moved "to a level that is certainly not strongly restrictive right now," emphasizing, "I think it is in a neutral range."

Meanwhile, several key Fed officials offered supporting context. Boston Fed President Susan Collins noted that she views prospective inflation risks as lower than previously and supported the rate cut due to a shift in the balance of risks. New York Fed President John Williams stressed the importance of returning inflation to the 2% target, observing persistent reluctance in the labor market to both hire and fire. He forecasts the Unemployment Rate to remain at 4.5% by year-end, with the inflation goal of 2% not being met until 2027. Further reinforcing a dovish leaning, Fed Governor Stephen Miran reiterated his expectation of a "faster decline in PCE shelter inflation," arguing that tariffs are not currently driving goods inflation higher.

In the bond market, US Treasury yields are edging up despite the benchmark 10-year bond rate holding steady at 4.19%. Furthermore, US real yields, which maintain an inverse correlation with Gold prices, remain firm at 1.926%.

Across the Atlantic, the European Central Bank (ECB) is broadly anticipated to keep its three main policy rates unchanged this week. However, speculation is mounting over a potential rate hike next year, fueled by increasingly hawkish commentary from various ECB Governing Council members. Council member Gediminas Šimkus explicitly stated there is no immediate necessity to adjust rates while inflation remains on target. This sentiment was echoed by Isabel Schnabel, who conveyed she is "quite comfortable" with market expectations that the ECB's next policy move could eventually be an increase. ECB President Christine Lagarde provided a positive macroeconomic assessment, noting that the Eurozone economy exhibits signs of resilience and that the Governing Council may upgrade its growth projections during the December meeting. Overbought Conditions and Strong Resistance May Trigger a Pullback_1

Overbought Conditions and Strong Resistance May Trigger a Pullback_1

Technical Analysis

The EUR/USD pair has recently experienced a strong upward surge, initiating from a local low of 1.1469 on November 5th and peaking at 1.1769 in the previous session. These new high levels, last seen in September, coincide with overbought readings on the 8-hour Relative Strength Index (RSI), which reached the 72 level. This specific RSI reading has not been observed since September 16th, an instance that preceded a significant bearish move following a major Fed decision, ultimately finding its bottom at the aforementioned local low. Consequently, the combination of these renewed overbought RSI levels and a robust resistance area near 1.1787 may trigger a renewed downside correction.

Such a correction would likely target the 1.1628 area, which aligns precisely with the 0.50 Fibonacci Retracement level—a common target zone for meaningful price pullbacks. Adding to this technical confluence, the 100 and 200-period Moving Averages are currently positioned at 1.1597 and 1.1643, respectively. Their close proximity to the key Fibonacci retracement levels significantly increases the probability of a corrective move toward this region. A retreat to this support zone would alleviate the overbought pressure on the RSI, effectively creating space for the price to potentially resume its overarching bullish momentum.

Trading Recommendations

Trading direction: Sell

Entry price: 1.1785

Target price: 1.1630

Stop loss: 1.1840

Validity: Dec 26, 2025 15:00:00

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Overbought Conditions and Strong Resistance May Trigger a Pullback

Technical Analysis

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