EUR/USD Forecast: The "dead cat bounce" does not bode well for the pair
|- The EUR/USD attempted recovery from the 7-week lows but never went too far.
- The relentless rise in US bond yields continues dominating the scene ahead of Draghi.
- The technical picture remains bearish for the pair, and the lack of a meaningful recovery does not bode well for the pair.
The EUR/USD is trading around $1.2200, close to the $1.2181 trough it reached on Tuesday and down from $1.2245, the post-crash recovery level. US bond yields continue their march to the upside and dominate financial markets. The 10-year yield, the global benchmark, topped 3.03%. The move higher is gradual: two steps forward, one step back.
For the EUR/USD, the recovery from the lows is a "dead cat bounce" that shows a weak recovery and implies further slides.
The greenback still enjoys momentum the momentum and the attention on yields. The rise of the US Dollar is consistent across the board. The uniform reaction to higher US yields will unlikely continue. When the dust settles, we will see which currencies are genuinely vulnerable and which have been carried away and are set to recover.
A light calendar this Wednesday leaves the scene not only to US yields but also for Thursday's ECB meeting. President Mario Draghi and his colleagues are not expected to change their current policy nor make any announcements about the next steps in the bond-buying scheme. The focus is on the tone of the statement.
If they remain constructive on euro-zone growth and reaching the inflation target, the common currency could rise. Conversely, an acknowledgment of the slowdown already evident and also in the forward-looking figures will likely weigh on the Euro on expectations for a slower exit from the loose monetary policy.
EUR/USD Technical Analysis
The EUR/USD remains under pressure. The RSI is around 40, point to further falls, Momentum is leaning lower, and the pair is well below the 50-day Simple Moving Average which is approximately $1.2330.
Moreover, the pair dropped below uptrend support which ran from the $1.2155 level seen on March 1st. We can now see a downtrend support line accompanying the pair since late March when it hit $1.2240. It then fell to $1.2210 in early April, forming the trend line and recently flirted with it at Wednesday's low of $1.2181. A break below downtrend support would accelerate the downfall.
Apart from the lines mentioned above, further support is at the 2017 peak of $1.2090. Additional resistance is at $1.2413.
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