The EUR/USD pair has been under pressure in recent weeks, as a combination of technical and fundamental factors have weighed on the euro and boosted the US dollar.

On the technical front, the pair has broken below several key support levels, such as the 200-day moving average, the 50% Fibonacci retracement of the 2020-2021 rally, and the 1.20 psychological mark. The pair is now trading near its lowest level since November 2020, around 1.17, and faces further downside risks if it fails to recover above the 1.18 resistance zone.

The technical indicators are also pointing to a bearish scenario, as the pair is trading below all its moving averages, which have turned downward. The Relative Strength Index (RSI) is hovering near the oversold territory, while the Moving Average Convergence Divergence (MACD) is showing a negative divergence. The pair could test the next support levels at 1.16, 1.15, and 1.14, if the selling pressure persists.

On the fundamental front, the pair has been influenced by the diverging economic outlooks and monetary policies of the eurozone and the US. The eurozone is still struggling to overcome the impact of the coronavirus pandemic, as the vaccination rollout has been slow and uneven, and the lockdown measures have been extended in several countries. The bloc’s gross domestic product (GDP) contracted by 0.7% in the fourth quarter of 2020, and is expected to shrink again in the first quarter of 2021, pushing the region into a double-dip recession.

The European Central Bank (ECB) has maintained an ultra-accommodative stance, keeping its key interest rates at record lows and expanding its pandemic emergency purchase programme (PEPP) to 1.85 trillion euros until at least March 2022. The ECB has also pledged to increase the pace of its bond purchases in the coming months, to counter the rise in bond yields and preserve favourable financing conditions. The ECB’s dovish stance has weighed on the euro, as it reduces the yield differential and the attractiveness of the currency.

The US, on the other hand, has shown signs of a robust recovery, as the vaccination campaign has accelerated and the fiscal stimulus has boosted consumer spending and confidence. The US GDP grew by 4.1% in the fourth quarter of 2020, and is expected to expand by more than 6% in 2021, according to the International Monetary Fund (IMF). The US labour market has also improved, as the unemployment rate fell to 6% in March, and the non-farm payrolls added 916,000 jobs, beating expectations.

The Federal Reserve has kept its policy rate near zero and its asset purchases at $120 billion per month, but has signalled that it is monitoring the inflation and growth developments closely. The Fed has revised up its economic projections for 2021, and has indicated that it could start raising rates in 2023, sooner than previously expected. The Fed’s hawkish tilt has supported the US dollar, as it increases the yield differential and the attractiveness of the currency.

The pair has also been affected by the global risk sentiment, which has been influenced by the coronavirus situation, the vaccine progress, the geopolitical tensions, and the trade relations. The pair tends to rise when the risk appetite is high, as the euro is seen as a riskier asset, and fall when the risk aversion is high, as the US dollar is seen as a safe-haven asset. The pair could face more volatility in the coming weeks, as the market sentiment could change depending on the evolution of the pandemic and the economic data.

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