EUR/USD Forecast: 3 reasons for the recovery attempt, but downtrend resistance looms

EUR/USD is making an attempt to recover. The immediate trigger has been the upbeat German Retail Sales report that showed a jump of 0.9% in February, much better than a drop of the same scale that was expected. Year over year, consumers spent 4.7% more than February 2018, a positive development.

Zooming out from the immediate reaction, the market mood has also improved and stock markets are up. There are three reasons behind the better mood:

1) Bullard dismisses yield curve concerns

Saint Louis Fed President James Bullard, a known dove, did not seem deterred by the inversion of the bond yield curve. While he acknowledged that it was an early warning of a recession in the past, he would want to see it consistently inverted and at many maturities. He also added that the US economy is doing quite well.

New York Fed President John Williams, not a dove, said that things are different than in the past, also playing down the main market concern.

2) US-Chinese trade talks

US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are in Beijing for trade talks. The reports coming out talk about patience in reaching a deal. In addition, both sides are reportedly working on ways to defuse the trade war.

President Donald Trump recently said that tariffs would remain in place, but these reports provide hope for the global economy.

3) End-of-quarter

Today is the last trading day of the week, the month, the quarter, and the fiscal year in Japan. Money managers are making a last-minute adjustment to rebalance their portfolios. After markets suffered losses in recent days, there is room for an upside adjustment.

Busy day

All in all, a better mood favors the Euro against the US Dollar and the Japanese Yen.

What's next? German labor market data is projected to remain upbeat and Italy's CPI to pick up. US releases are of higher importance. The Fed's preferred inflation gauge, the Core PCE Price Index, is projected to rise by 0.2% and stick below 2% YoY. Personal Income, Personal Spending, and perhaps most importantly, the final Consumer Sentiment measure from the University of Michigan will be of interest. US New Home Sales seal the quarter's economic releases.

On Thursday, the US reported weaker-than-expected GDP data: 2.2% annualized growth in Q4 2018, but this may be a Goldilocks figure for the greenback.

And if these factors are not enough, there's always Brexit. Embattled UK PM Theresa May will bring her Brexit accord to a third vote in a slightly different form: MPs will only vote on the Withdrawal Agreement, not on the full accord. The change was needed due to procedural demands from Speaker John Bercow. 

Despite offering to resign in case the accord passes, the House will likely reject the accord. This may initially be pound-negative, but additional indicative votes on Monday open the door to better scenarios. The euro may be impacted by today's vote, but it is hard to gauge exactly how.

EUR/USD Technical Analysis

EUR/USD is trading below downtrend resistance as depicted by the thick black line on the four-hour chart. It limits any upside move. Momentum remains to the downside and the Relative Strength Index is leaning lower without entering oversold conditions below 30. Moreover, the 50 Simple Moving Average crossed the 200 SMA to the downside, a bearish sign.

Support awaits at 1.1212 which was the low point on Thursday. 1.1176 was the lowest level in 2019. The next levels already date back to 2017: 1.1115 and 1.1025 are next down the line.

1.1240 separated ranges in recent days and serves as resistance. 1.1275 was a swing low last week and 1.1285 capped the pair earlier this week. 1.1315 is where the 50 and 200 SMAs meet. 1.1335 was another peak.