EUR/USD Forecast: Upside limited while under 1.1000
|- US Dollar's recovery loses momentum, DXY drops below 102.00.
- Common currency benefits from higher Euro Zone yields.
- EUR/USD overall bias remains bullish, mixed in the short term.
The EUR/USD rose on Tuesday after staying above the 1.0900 area and critical technical levels. A weaker US Dollar boosted the pair, which moved in a small range during the American session. A light economic calendar ahead could favor limited swings, particularly if it remains under 1.1000.
The April German ZEW survey was mixed. The Current Situation Index improved from -46.5 to -32.5, surpassing expectations, but the Economic Sentiment Index fell unexpectedly from 13 to 4.1. On Wednesday, the Euro Zone March Consumer inflation report is due; it is the final reading, so it should not impact markets. Also scheduled is the February Current Account and Construction Output for the same month. European Central Bank's Lane and Schnabel will speak.
The US Dollar fell on Tuesday, with US yields little changed and a mixed performance on Wall Street. US data showed positive and negative signs from the housing sector. The Federal Reserve (Fed) will release the Beige Book on Wednesday. Fed officials' latest comments keep the door open to one more rate hike.
As Fed rate cuts got priced out, market participants see the ECB raising rates further beyond May. Euro Zone's yields rose on Tuesday, offering support to EUR/USD. The German 10-year yield settled at 2.49%, the highest level since March 9, while the US 10-year fell modestly to 3.57%.
EUR/USD short-term technical outlook
On the daily chart, the EUR/USD is above a bullish 20-period Simple Moving Average (SMA) that stands at 1.0895 and is tilted to the upside. The pair needs to hold firm above 1.1000 in order to open the door to more gains over the medium term. A slide under 1.0850 would weaken the outlook, favoring a test of the crucial support at 1.0760.
Ahead of the Asian session, the 4-hour chart shows EUR/USD above an uptrend line but below the 20-period SMA. The bias is to the upside, but signs are mixed. The Momentum is moving south, while the Relative Strength Index is flat at 50. Above 1.0990, the Euro should gain momentum for another attempt at 1.1000. A consolidation above this level would turn the attention to the next resistance at 1.1045. On the downside, another slide to 1.0950 seems likely during the following session. Below, the pair could slide further to 1.0920. The bias is constructive while above 1.0895, a crucial dynamic support.
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