EUR/USD Forecast: 3 reasons for the fall, only a healthy correction for now

The EUR/USD is losing ground as the US Dollar reasserts itself.
Trade hopes and fears and also US GDP set the tone for the day.
The technical picture remains bullish for the pair.

Yohay Elam FXStreet

The EUR/USD is trading well below 1.1700, paring the gains seen on Tuesday. The US Dollar is making a comeback.

Here are three reasons for the upswing:

1) Natural correction:. The thrill from the US-Mexico deal is fading out and is already priced in. Canada is also set to make concessions and reach a new NAFTA agreement.

2) China: Concern about US-China relations weighs. US Commerce Secretary Wilbur Ross reiterated the position of President Donald Trump, saying it is not the time to talk to China. The US is on course to impose new tariffs next week.

3) Consumer are happy: The Conference Board's Consumer Confidence jumped to the highest levels since November 2000. The figure provides some optimism after a few disappointing housing figures, the last being the Case Shiller House Price Index, which slowed down.

The primary economic indicator of the week is scheduled for today. The US publishes the second estimate of Q2 GDP. The initial assessment was for a growth rate of 4.1% annualized, the fastest in four years. A small downgrade is on the cards now, but it is unlikely to deter the Fed.

See how to trade the GDP with EUR/USD.

Apart from the data, any news global commerce will rock the US Dollar.

In the euro-zone, France confirmed the meager growth rate of 0.2% QoQ in Q2. More importantly, Italy reportedly wants the European Central Bank to continue buying Italian bonds. The new Italian government is a collision course with the EU bureaucracy as well as with Germany.

US events have a bigger say than European ones in recent days.

EUR/USD Technical Analysis

The EUR/USD continues looking good despite the recent downfall. The fresh lows are still above the previous lows. Also, Momentum and the Relative Strength Index remain positive. The 50 Simple Moving Average on the four-hour chart is about to cross the 200 one, a bullish sign.

1.1700 is a round number and also capped the pair in early and late August. 1.1750 is a quadruple top, as seen back in July and is fierce resistance. Further up, 1.1795 held the EUR/USD down in June.

1.1655 was a stepping stone on the way up. A significant fall below this line may pace the move to the downside. 1.1625 capped the pair in mid-August. Lower, 1.1595 was a swing low before the run of the last few days.

More: EUR/USD fell off support, looks vulnerable – Confluence Detector

Author

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.

GBP/USD surrenders some gains, back to 1.3420

GBP/USD holds on to moderate gains above 1.3400 the figure on Friday. Optimism surrounding the UK government’s leadership transition and expectations of further BoE tightening support the British Pound, while easing tensions in the Middle East and fading Fed rate-hike expectations weigh on the US Dollar.

EUR/USD turns positive, targets 1.1450

EUR/USD now picks up pace and advances toward the 1.1440 region on Friday, up modestly for the day. With no major economic data due, lingering uncertainty over the US-Iran conflict keeps investors cautious, limiting the pair's upside.

Gold remains offered, still below $4,100

Gold struggles to extend Thursday’s rebound and navigates below the $4,100 mark per troy ounce on Friday. Uncertainty surrounding the Middle East conflict limits the precious metal’s upside, which is also under pressure amid rising US Treasury yields across the curve.

Week ahead – US CPI and Warsh testimony to take centre stage, BoC eyed too

US inflation report and Warsh testimony to headline the week. Dollar to dominate amid slew of other US data and Mideast tensions. Amid fresh Iran escalation, China GDP to shed light on Q2 impact. Bank of Canada not expected to follow RBNZ with rate hike.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June Federal Open Market Committee meeting landed mid-round-trip, describing a world that had already stopped existing.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June FOMC meeting landed mid-round-trip, describing a world that had already stopped existing.