EUR/USD's near-term outlook has turned more bearish after the pair failed to sustain a rally above its 10- and 21-day moving averages and the downtrend line from the May 11 high. Instead, it reversed course and fell to a 16-session low, with the probability of a renewed rally diminishing due to a combination of U.S. employment data, rising oil prices, and shifts in the U.S. interest rate environment.

A key driver has been oil's surge, with Brent crude extending its rally off late-June lows to trade above $100 per barrel on Thursday, stoking investor concerns that inflation could reaccelerate. This has fed directly into the U.S. rate complex, as yields rise on fears the Fed may need to adopt a more hawkish posture. The U.S. 2-year Treasury yield reached a fresh 2026 high, invalidating a bearish rising-wedge pattern on daily charts, while March 2027 SOFR futures broke below their 2025 low—a signal that rates could move significantly higher. This dynamic has widened U.S.-German 2-year yield spreads , boosting the dollar's yield advantage over the euro.

Technical indicators reinforce the bearish case: inverted hammer candlesticks have appeared on both daily and monthly charts, RSI readings point to downward momentum, and EUR/USD's inability to hold above its 10- and 21-day moving averages and the prevailing downtrend line all add to the negative picture.

Until these bearish forces ease, downside risks for EUR/USD are likely to remain elevated.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)