EUR/USD Forecast: In tin-hat mode, waiting for the hammer to send it below $1.1800
|- The EUR/USD failed to stage a meaningful recovery and fell to a new 2018 low, close to 1.1800.
- Italy's new government and a confirmation of low inflation prepare the ground for another fall.
- Oversold conditions may provide some relief temporary relief.
The EUR/USD is trading around $1.1810, stable in the new, low range. Final euro-zone inflation figures confirmed the initial weak numbers in April: 1.2% on the headline and 0.7% on the core. The figures did not surprise but they serve as a reminder that the caution expressed by Mario Draghi, the President of the European Central Bank is justified. The exit from the stimulus may be slow.
And from the Italian central banker to Italy: the third-largest economy in the euro-zone is on the verge of having a new government. The League and the 5-Star Movement dropped the initial ideas of not paying €250 billion in debt and thoughts of leaving the euro-zone. This change calms investors but worries could resurface.
US Treasury yields remain on the high ground, around 3.06% at the time of writing after approaching 3.10% on Tuesday. The rise in the global benchmark boosted the US Dollar. A potential rise in yields in the US session could provide fresh fuel for the US Dollar to rise.
The US releases Building Permits, Housing Starts, and Industrial Output later on. None of the figures stands out on its own, but if all of them go in the same direction, the greenback will likely feel the impact. On Tuesday, upward revisions in Retail Sales served as a pretext to buy the US Dollar.
EUR/USD Technical Analysis
The EUR/USD fell off the uptrend line that accompanied its recovery (thick black on the chart) and this is a bearish sign. The pair also remains below the 200-day Simple Moving Average which is around $1.2010. Momentum remains strong to the downside. The RSI points to oversold conditions, but these are not extreme ones and the pair proved it can continue falling even under such conditions.
Looking down, $1.1760 is a convergence of various lines, as seen by the Confluence Detector. Further down, the $1.1715 level supported the pair in late 2017. The round number of $1.1700 follows.
On the upside, $1.1850 capped the pair in a recovery attempt earlier in the day. The January low of $1.1915 is next, and the round number of $1.2000 looms above.
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