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EUR/USD Forecast: Dead cat bounce as the dark clouds point down

  • EUR/USD is trading around 1.1300, sticking to familiar levels.
  • The current market calm may be deceiving as worries continue mounting.
  • The technical picture is also bearish.

Volatility in EUR/USD has calmed down, and the world's most popular currency pair trades around 1.1300 once again, sticking to a limited range. Stock markets are recovering after the downfalls seen in previous days. The upwards move looks like a natural correction rather than a fundamental shift.

The US yield curve is inverted and given the past, points to a recession. At some point on Monday, the 10-year yield was lower than the overnight Fed Funds rate. Even if yields are skewed by the Federal Reserve's QE programs, ongoing concern about a downturn can turn into one - a self-fulfilling prophecy.

Boston Fed President Eric Rosengren seems to be willing to fight the yield curve by suggesting a change in the Fed's reinvestment policy: buying the short end of the curve in order to push short-term borrowing lower and long-term financing higher. 

In the meantime, Germany's GfK Consumer Confidence disappointed with a drop to 10.4 points. One of the triggers for the stock sell-off and the rush to bonds was Germany's poor Manufacturing PMI. Now, it seems that not only Germany's outward-facing manufacturing sector is in trouble, but also its domestic consumption. 

Later today, the US Conference Board's Consumer Confidence is set to remain at high ground. 

See  US Conference Board Consumer Confidence Preview: Is sentiment enough?

Back from across the Atlantic to across the English Channel, the British Parliament voted on Monday to hold indicative, non-binding votes on Wednesday, signaling the way forward for Brexit. Uncertainty remains high as there are only 17 days left to Breit. Significant developments around the event could impact the euro as well as the pound.

EUR/USD Technical Analysis - Bearish

EUR USD March 26 2019 technical analysis

Momentum on the four-hour chart points to the downside. The Relative Strength Index is leaning lower while EUR/|USD slipped below the 200 Simple Moving Average. All in all, bears are in control.

The recent recovery from the lows looks like a "dead cat bounce." Even a dead cat bounces when it falls, but the recovery is limited, and the downside looks more appealing.

Support awaits at 1.1285 which was a support line in early March. The next cushion is close by 1.1275 was the low point on Friday and also a stepping stone on the way up. 1.1250 separated ranges on the way up in mid-March. The next lines are 1.1220 and 1.1200.

Resistance is at 1.1335 which was a support line last week and then capped the pair on Monday. 1.1360 was a stubborn cap last week. 1.1390 was a swing high before the fall. 1.1420 and 1.1448 are next.

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
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