|

EUR/USD Forecast: Balance tilts toward the bulls as dramas diminish

  • EUR/USD is trading at the upper end of the range on USD weakness, positive developments.
  • Italy and trade talks remain in the limelight.
  • The technical picture continues improving but the pair remains hesitant.

EUR/USD kicks off Tuesday on a higher note. The central driver is the weakness of the US Dollar, which is closely associated with the slide in US bond yields. The benchmark 10-year Treasury yield slipped below the round number of 3%.

The focus is not merely on the benchmark figure but on the flattening of the yield curve. A higher yield on the 2-year note than on the 10-year one signaled an upcoming recession in the past. At the moment, the curve on this specific spread is flattening but not inverting. However, the spread between yields for three and five years has inverted and causes concerns.

The summit between US President Donald Trump and his Chinese counterpart Xi Jinping was hailed as a success and lifted markets. However, there are discrepancies between the details published by Washington and those by Beijing. It is unclear when the 90-day trade truce begins if China will scrap tariffs on cars as Trump tweeted and other differences. At the moment, goodwill and optimism prevail and the greenback remains on the back foot.

Back in the old continent, talks between Italy and the European Union continue over the budget. Rome gradually climbed down from the planned 2.4% budget deficit and they opened the door to 2%. Brussels may not find this sufficient. Also here, the rhetoric is constructive rather than looking for a fight.

France is set to announce the suspension of fuel tariffs which have sparked massive protests. The "gilets jaunes" movement turned violent in some cases in recent cases. The announcement is due to lower tensions which have been a major crisis for French President Emmanuel Macron.

The common currency received a minor boost from the opinion at the European Court of Justice, stating that the UK may revoke Article 50 unilaterally, opening a crack in the door to reversing Brexit. The Euro follows the Pound on substantial Brexit-related moves.

All in all, the Euro enjoys the calm around Italy, trade talks, and Brexit.

EUR/USD Technical Analysis

EUR USD technical analysis December 4 2018

EUR/USD is trading above the 50 and the 200 Simple Moving Averages on the four-hour chart, a bullish sign. 1.1400 capped the pair late in November and is now critical for the next upside move. 

Further above, 1.1435 held the pair down previously in November and serves as another cap. 1.1475 was a high point in mid-November and the round number of 1.1500 was the high point of the month.

1.1380 was a swing high early in the week. 1.1350 was a swing low last week. More importantly, 1.1325 was the gap line, later closed. The former double-bottom of 1.1300 remains relevant. 

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

GBP/USD weakens to two-week lows near 1.3520

GBP/USD trades on the back foot, returning to the low 1.3500s, or two-week troughs, on Tuesday. Cable’s bearish price action follows decent gains in the Greenback at the time when investors assess latest US data releases and the persistent uncertainty in the US-Iran crisis.

EUR/USD remains offered; breaks below 1.1600

EUR/USD now accelerates its daily correction, breaching below the key 1.1600 support level on Tuesday. The pair’s daily correction comes on the back of a decent bounce in the US Dollar despite disappointing US data releases and amid persistent geopolitical concerns.

Gold flirts with multi-week lows near $4,300

Gold accelerates its correction and recedes toward the key $4,300 mark per troy ounce on Tuesday. The yellow metal’s persistent decline comes in response to the solid performance of the US Dollar and a sharp move higher in US Treasury yields across the curve.

RBNZ set to raise interest rate to 2.75%
The Reserve Bank of New Zealand (RBNZ) is on track to deliver a follow-through interest rate hike, raising the Official Cash Rate (OCR) by another 25 basis points (bps) from 2.50% to 2.75% on Wednesday. Experts expect a consensus decision this week, unlike a deeply divided outcome predicted during the July monetary policy meeting.
Global bond market sell off haunts markets

Global sovereign bonds are selling off as we start a new month. The UK is, unsurprisingly, taking the biggest hit. Two and 10-year yields rose by 10 basis points at one point on Tuesday, and are currently higher by 7 and 8bps respectively.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.