|

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:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

EUR/USD remains below 1.1750 ahead of ECB policy decision

EUR/USD remains on the back foot below 1.1750 in the European session on Thursday. Traders move to the sidelines and refrain from placing any fresh directional bets on the pair ahead of the ECB policy announcements and the US CPI inflation data. 

GBP/USD stays defensive below 1.3400, awaits BoE and US CPI

GBP/USD oscillates in a narrow band below 1.3400 in European trading on Thursday. The pair trades with caution as markets eagerly await the BoE policy verdict and US consumer inflation data for fresh directional impetus. 

Gold holds losses below $4,350 ahead of US CPI report

Gold struggles to capitalize on the previous day's move higher and holds its pullback below $4,350 in the European session on Thursday. The downtick could be attributed to some profit-taking amid a US Dollar bounce. All eyes now remain on the US CPI inflation data. 

BoE set to resume easing cycle, trimming interest rate to 3.75%

The Bank of England will announce its last monetary policy decision of 2025 on Thursday at 12:00 GMT. The market prices a 25-basis-point rate cut, which would leave the BoE’s Bank Rate at 3.75%.

US CPI data expected to show inflation rose slightly to 3.1%, cooling Fed rate cut bets for January

The US Bureau of Labor Statistics will publish the all-important Consumer Price Index (CPI) data for November on Thursday at 13:30 GMT. The CPI inflation in the US is expected to rise at an annual rate of 3.1% in November

Dogecoin Price Forecast: DOGE breaks key support amid declining investor confidence

Dogecoin (DOGE) trades in the red on Thursday, following a 4% decline on the previous day. The DOGE supply in profit declines as large wallet investors trim their portfolios. Derivatives data shows a surge in bearish positions amid declining retail interest.