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EUR/USD Forecast: Correcting from oversold conditions, but Draghi continues pointing to the downside

  • EUR/USD extends its slump amid concerns about downside risks.
  • Draghi's repeat of his dovish message does not help.
  • The technical picture is bearish for the pair.

EUR/USD is trading above 1.1250, bouncing from the lows, as the US Dollar takes a breather from its gains, but this may be temporary.

European Central Bank President Mario Draghi repeated his stance that risks are tilted to the downside. He reiterated his previous words.

The central banker said there is pervasive uncertainty in the global economy while the local economy remains relatively resilient. The recent monetary policy measures reflect this assessment. 

Euro/dollar did not need Draghi to know that the downside is more appealing. Concerns about a US recession continue after the yield curve inversion, a reliable indicator of an upcoming downturn. While the yield curve re-steepen and stop signaling a slump, concerns can turn into a self-fulfilling prophecy. 

Fears of a US recession, trade, Brexit

Recent US data does not help. Both Housing Starts and Building Permits missed expectations in reports published on Tuesday. Perhaps the most significant figure was the CB Consumer Confidence that fell back to January's levels when the government shutdown weighed on sentiment. 

While the soft data may be temporary, they add to recession fears. The US Dollar and the Japanese Yen gain from the risk-off mood. 

Fed nominee Stephen Moore suggested the Fed could slash interest rates by no less than 50 basis points. On the other hand, Moore claimed he is not a dove and will not be a sycophant for President Donald Trump, that nominated him.

Trade talks between the US and China continue with high-level meetings between US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer traveling to China. 

The economic calendar remains relatively light. The US trade balance and current account numbers are due later. Additional ECB members will speak during the day.

Brexit headlines are also eyed. Parliament will begin its process of holding indicative votes on alternative Brexit options while PM Theresa May continues her efforts to muster a majority for her Brexit deal which was rejected twice by the House of Commons. 

EUR/USD Technical Analysis

EUR USD technical analysis March 27 2019

The Relative Strength Index on the four-hour chart is now marginally above 30 after falling before this level and reflecting oversold conditions. The bounce seems like a "dead cat bounce" or a necessary correction after sharp falls. 

Momentum is to the downside, and the pair trades below the 50 and 200 Simple Moving Averages. 

Support awaits at the recent low of 1.1245 which also supported EUR/USD earlier this month. 1.1220 was a stepping stone on the way up and 1.1205 temporarily capped it when it fell to 1.1176 in early March.

Looking up, 1.1275 was a swing low several times, and 1.1290 was a support line earlier this week. 1.1315 provided support in mid-March and nearly converges with the 200 SMA. 1.1335 is where the 50 SMA meets the price. 1.1360 capped euro/dollar last week and 1.1390 was a swing high.

More: EUR/USD is reaching critical support at 1.1240, break or bounce? – Confluence Detector

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.

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