|

EUR/USD Forecast: 3 reasons for breaking the double-bottom, now challenging downtrend support

  • The EUR/USD collapsed below the 1.1300 double-bottom to a 17-month low.
  • The Fed, Italy, and Brexit are behind the downfall.
  • The technical picture is bearish as the pair is not in oversold territory.

The EUR/USD is finally out of the range, and with a bang. The world's most popular currency pair broke below the double bottom at 1.1300 and reached a low of 1.1240 quite quickly. Cascading stop-loss points may have exacerbated the downfall.

There are three reasons behind the fall:

1) Brexit impasse

Negotiations between Brussels and London have not yielded a solution to the question of the Irish border. Moreover, talks within the British government are in a state of chaos. Supporters of a hard Brexit reject any compromise that PM Theresa May could offer. Pro-Remain politicians such as Justine Greenberg are also having their say, especially after Friday's resignation of Jo Johnson. Johnson was a junior, pro-Remain minister and the brother of former Foreign Secretary Boris Johnson. 

All in all, there are growing concerns that no deal can pass a vote in parliament, regardless of the European Union's position.

2) Italy deadline

The third-largest economy in the euro-zone is due to respond to the European Commission by Tuesday. The EC rejected Italy's budget with its 2.4% deficit and rosy growth forecasts. The Italian government is convening to decide on the matter. 

The ongoing clash is weighing on Italian bonds. Spreads between these securities and the benchmark German bunds is widening and hurting the common currency.

3) USD strength, Fed-related

The US Dollar took a hit on the US Mid-Term elections but then recovered. The Fed left rates unchanged but maintained its hawkish bias, with high expectations for a rate hike in December, the fourth this year.

The US Dollar is gaining ground across the board. US traders are off due to Veterans' Day.

EUR/USD Technical Analysis

EUR USD downfall November 12 2018

The EUR/USD made a convincing breakout below the 1.1300 double-bottom. The Relative Strength Index on the four-hour chart is lower, but above the 30 level that represents oversold conditions. Momentum is to the downside, and the pair is well below the 50 and 200 Simple Moving Averages. 

As the chart shows, the pair has been trading within a downtrend channel in the past few days. The collapse sends it to challenge the bottom of the channel, the downtrend support line. Break or bounce?

The Confluence Detector shows that the next line to watch is 1.1235, just below the recent low. Further down, 1.1210 awaits close by. The next level is 1.1100, last seen in June 2017.

1.1300 now turns into a line of resistance. It is followed by 1.1330 that supported the pair in late October. 1.1360 was a temporary support line in early November, and the round 1.1400 level served as support when the EUR/USD traded on the high ground last week.

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

More from Yohay Elam
Share:

Editor's Picks

EUR/USD flirts with daily highs, retargets 1.1900

EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.

GBP/USD remains well bid around 1.3650

GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s  irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.

Gold clings to gains just above $5,000/oz

Gold is reclaiming part of the ground lost on Wednesday’s marked decline, as bargain-hunters keep piling up and lifting prices past the key $5,000 per troy ounce. The precious metal’s move higher is also underpinned by the slight pullback in the US Dollar and declining US Treasury yields across the curve.

Crypto Today: Bitcoin, Ethereum, XRP in choppy price action, weighed down by falling institutional interest 

Bitcoin's upside remains largely constrained amid weak technicals and declining institutional interest. Ethereum trades sideways above $1,900 support with the upside capped below $2,000 amid ETF outflows.

Week ahead – Data blitz, Fed Minutes and RBNZ decision in the spotlight

US GDP and PCE inflation are main highlights, plus the Fed minutes. UK and Japan have busy calendars too with focus on CPI. Flash PMIs for February will also be doing the rounds. RBNZ meets, is unlikely to follow RBA’s hawkish path.

Ripple Price Forecast: XRP potential bottom could be in sight

Ripple edges up above the intraday low of $1.35 at the time of writing on Friday amid mixed price actions across the crypto market. The remittance token failed to hold support at $1.40 the previous day, reflecting risk-off sentiment amid a decline in retail and institutional sentiment.