EUR/USD Forecast: Euro loses strength, but not the trend
|- US Dollar recovers ground despite dismal United States data.
- Bond yields drop on both sides of the Atlantic.
- EUR/USD losses bullish momentum, points to consolidation near 1.0900.
The EUR/USD retreated on Wednesday, falling from the highest daily close in two months to sub-1.0900 levels. The slide occurred despite weaker-than-expected US data and amid a rally in government bonds.
US and European yields dropped on Wednesday. The slide in Europe was more significant and weighed on the Euro. The German 10-year yield fell from 2.28% to 2.18%, the lowest since March 27. The 10-year Treasury Bond yield dropped to 3.26%, the lowest since September.
The US Dollar appreciated against European currencies on Wednesday, despite US data. The ADP Employment report showed private payrolls rose by 145K in March, below the 200K of markets consensus. The ISM Service PMI fell to 51.2 versus estimates of 54.5 in the same period. More US data is coming on Thursday with Jobless Claims ahead of Friday’s Nonfarm Payrolls. However, subdued trade is expected ahead of the Easter holidays.
The final Eurozone March S&P Global Service PMI was revised lower from the preliminary 55.6 to 55.0. German reported that Factory Orders rose 4.8% in February, well above expectations of a 0.3% increase. Germany will report Industrial Production on Thursday and could surprise again to the upside.
“The biggest part of the cycle of rate raises is behind us”, mentioned European Central Bank’s Boris Vujcic and later explained that if core inflation remains above 4%, more hikes can be expected. ECB Philip Lane said that inflation is at its most intense in food. Despite comments and the global outlook, markets continue to see a rate hike at the next ECB meeting on May 4.
On Wednesday, Federal Reserve’s Loretta Mester said they should move the key rate above 5% and hold in restrictive territory for some time to quell inflation. While the bond market continues to point to rate cuts later in 2023, central banks are not considering that scenario and continue discussing the need for a tight policy until inflation is under control.
EUR/USD short-term technical outlook
Despite the slide, the daily chart for the EUR/USD shows the price developing firmly above the bullish 20 and 100 Simple Moving Averages (SMA), still looking to test the 1.1000 psychological level. Technical indicators lost bullish momentum, with the RSI moving south slowly after approaching 70.
The 4-hour chart for EUR/USD also shows the price well above relevant moving averages. The 20-period offers support at 1.0890. A consolidation below would point to an extension of the correction, targeting the 1.0860 zone. Below, critical dynamic support emerges at 1.0840 (uptrend line). The Euro has lost bullish momentum, and technical indicators favor consolidation ahead. However, a firm return above 1.0930 would expose recent highs.
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