• The EUR/USD is recovering from the lows and finds some reasons to rise.
  • However, this may only be a temporary, as the pair has reasons to fall.
  • Here are five reasons to fade this current recovery.

The EUR/USD is on the rise, trading above 1.1700 and contrary to previous days, not losing ground at the wake of the American session. Hopes that Italy will have a moderate finance minister and the relatively dovish meeting minutes both send the pair higher.

But there are reasons to doubt the move:

1) The Italian saga is not over 

Luigi Zingales, the moderate, has not been named Finance Minister. Hopes for his nomination are already lower after The League said that Paolo Savona, the Euroskeptic, is still their candidate. And even if Zinglaes is nominated, he may still be serving the interests of the populist League and the 5-Star Movement. It is important to note that the Prime Minister-designate Giuseppe Conte has no political experience and could be the populists' puppet. Zingales or any other candidate for FinMin could have the same fate.

2) The Fed is still raising rates

The Fed's meeting minutes showed that members will allow for slightly higher inflation. This dovish tone does not mean they will not raise interest rates. They said they will raise rates "soon", which means a hike in June. In addition, they are still bent on increasing rates at least once more this year and several times in 2019. 

3) Trade wars

Each time the Trump Administration makes some kind of concessions or voices optimism on trade relations, they follow up with a retreat to the tough stance. NAFTA talks seemed to be close to an end. Relations with China dramatically improved over the weekend only to sour again.

Just the talk about these issues weighs on sentiment. We are seeing the considerable gains of the safe-haven Japanese Yen and the US Dollar also gaining ground. Without any change of attitude at the White House, trade issues will likely push the USD higher against the Euro. The recent idea to impose higher tariffs on car imports while China is lowering them shows that Trump and team are in for a fight. 

4) Profit taking 

Forex trading is never a straight line. There are always pullbacks and corrections within a trend. And with this specific trend, we have already seen quite a few "dead cat bounces" in which the EUR/USD moved up just a bit only to fall once again. The current bounce may be slightly more significant, but the character may be exactly the same.

5) US bonds still set to rise

The 10-year benchmark has dropped from the highs of 3.13% to dip below 3%. Also here, we see some profit taking. The rise of bonds, which in turn support the Dollar, do not stem only from Fed hikes. They are also a result of the government's policies: lower taxes and higher spending (to please all members of Congress) mean the government needs more money. Trump is also considering further cuts in November. The Treasury's growing funding needs mean a higher supply of bonds, thus a lower price and higher yields. This trend is unlikely to stop.

More: EUR/USD recovery seen capped at 1.1747, a fall could end below 1.1600 — Confluence Detector

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD retreats to 1.0850 area as US Dollar rebounds

EUR/USD retreats to 1.0850 area as US Dollar rebounds

EUR/USD has extended its slide toward 1.0850 in the American session. Profit-taking ahead of the weekend and the negative shift witnessed in risk sentiment seems to be helping the US Dollar gather strength against its rivals, weighing on the pair.

EUR/USD News

GBP/USD trades on the back foot below 1.2400

GBP/USD trades on the back foot below 1.2400

GBP/USD is having a difficult time gathering recovery momentum and trading in negative territory below 1.2400 on Friday. Although the data from the US showed that PCE inflation continued to soften in December, the US Dollar holds its ground heading into the weekend.

GBP/USD News

Gold struggles to hold above $1,930

Gold struggles to hold above $1,930

Gold price has lost its traction and declined below $1,930 during the American trading hours. The benchmark 10-year US Treasury bond yield clings to modest daily gains above 3.5% ahead of the weekend, not allowing XAU/USD to gain traction.

Gold News

Is the dramatic rise in whale activity in AAVE, MATIC and DYDX a sell signal?

Is the dramatic rise in whale activity in AAVE, MATIC and DYDX a sell signal?

AAVE, MATIC and DYDX price rallied alongside large market capitalization cryptocurrencies Bitcoin and Ethereum in January. Experts at the crypto intelligence tracker Santiment believe the recent spike in activity by whales on these networks needs to be watched closely.

Read more

Breaking: US annual Core PCE inflation declines to 4.4% in December as expected

Breaking: US annual Core PCE inflation declines to 4.4% in December as expected

Inflation in the US, as measured by the Personal Consumption Expenditures (PCE) Price Index, declined to 5% on a yearly basis in December from 5.5% in November, the US Bureau of Economic Analysis reported on Friday.

Read more

Majors

Cryptocurrencies

Signatures