Overextended RSI at Local Highs Could Spark a Downward Pullback

Manuel

Forex

Economic

Summary:

The presence of this technical cluster significantly boosts the likelihood of a downward retrace toward this zone.

SELL EURUSD

EXP

TRADING

1.15111

Entry Price

1.14350

1.16100

1.15111 +0.00040 +0.03%

0.0

Pips

Flat

1.14350

Exit Price

1.15111

Entry Price

1.16100

Market attention continues to focus on the evolution of relations between the United States and Iran. U.S. President Donald Trump stated on Monday that Washington maintains talks with Tehran at the request of Iranian authorities, describing them as a final opportunity to reach an agreement. Although he assured that the conflict "is evolving favorably," he also accused Iranian leadership of sending mixed signals by publicly denying the existence of negotiations.

Trump reiterated that the U.S. naval blockade will remain in place until Iran agrees to commitments that include permanently renouncing the development of nuclear weapons and reopening the Strait of Hormuz to international transit. Furthermore, he stressed that he will not allow Tehran to impose tolls for passage through this strategic maritime route.

On the economic front, data published by the Institute for Supply Management (ISM) showed notable strength in the U.S. manufacturing sector. The Manufacturing PMI advanced to 55.6 points in July from 53.3 in June, widely beating market expectations and posting its highest level in four years. The report also highlighted an improvement in the employment component, which grew for the first time since 2023, though prices paid indicators continue to reflect elevated pressures on production costs.

According to the ISM, demand remained solid thanks to greater clarity surrounding tariff policy and a reduction in supply chain disruptions linked to the Middle East conflict—factors that have also helped strengthen the labor market.

Nevertheless, the recent decline in oil prices has led investors to temper expectations for further tightening by the Federal Reserve. According to Prime Terminal data, markets currently price in around 22 basis points of cumulative monetary tightening toward the end of 2026.

In Europe, German consumption data pointed to some weakness during June. Retail sales pulled back by 1.1% month-over-month, a steeper decline than anticipated by the market, while falling 0.2% on an annual basis, reflecting a moderation in household spending.

Despite this, manufacturing activity continued to show signs of recovery. Germany's Manufacturing PMI rose to 52.2 points in July, reaching its highest level in four months, while the equivalent indicator for the Eurozone advanced to 51.9, recording the strongest expansion in industrial activity since April.

Meanwhile, the Eurozone economy grew 0.4% quarter-over-quarter during the second quarter, topping consensus expectations and rebounding from the contraction observed previously. On an annual basis, GDP accelerated to 1.0%, suggesting a gradual improvement in regional economic activity.

Regarding monetary policy, European Central Bank (ECB) Governing Council member Peter Kazimir maintained a hawkish tone, noting that at least one additional interest rate hike will likely be required to prevent inflationary pressures from spreading to the broader economy. Furthermore, he warned that a deterioration in the inflation outlook could demand a more aggressive monetary stance than markets currently contemplate. Overextended RSI at Local Highs Could Spark a Downward Pullback_1

Overextended RSI at Local Highs Could Spark a Downward Pullback_1

Technical Analysis

EURUSD reacted lower after reaching the psychological resistance level near 1.1550, quickly retreating below this threshold. This rejection off the resistance zone could launch a downward corrective process following a fairly strong bullish drive. With the 100 and 200-period moving averages currently sitting at 1.1429 and 1.1423, respectively, price could pull back toward this vicinity—an area that also aligns with the 0.618 Fibonacci retracement level. The presence of this technical cluster significantly boosts the likelihood of a downward retrace toward this zone.

Looking at the oscillators, the RSI reached the 74 level, entering clear overbought territory. Moreover, these readings mark recent local highs—even exceeding the levels seen in mid-June when price was trading near 1.1613—suggesting that bulls have become overextended and a downward correction could be in sight. On the other hand, the MACD shows a bullish histogram that is starting to gain depth, with the signal lines still positioned in positive territory. As such, this current move remains a downward pullback, though a bearish crossover by the signal lines could extend the decline further.

Trading Recommendations

Trading direction: Sell

Entry price: 1.1511

Target price: 1.1435

Stop loss: 1.1610

Validity: Aug 14, 2026 15:00:00

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Overextended RSI at Local Highs Could Spark a Downward Pullback

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