EUR/USD Forecast: Dead cat bounce as the Euro dreads Draghi

After the downfall, the EUR/USD is attempting to stabilize around 1.1400.
The ECB decision takes center stage today, with all eyes on Draghi.
The technical picture is slightly bearish for the pair amid its dead cat bounce.

Yohay Elam FXStreet

The EUR/USD is trading around 1.14000 in the new European session. Stock markets are falling in Europe, following the lead from Asia and from Wall Street on Wednesday. Fears about the impact of tariffs and the Fed's tightening weigh on stocks. US President Donald Trump blamed the Fed, but his intervention could backfire.

The risk-off sentiment pushed the US Dollar and the safe-haven Japanese yen higher. Also, Europe has problems of its own. The German IFO Business Climate dropped from 103.7 to 102.8, short of expectations. The publication goes hand in hand with Wednesday's disappointing Purchasing Managers' Indices, especially in the manufacturing sector.

Another ongoing concern is Italy. The euro zone's third-largest economy continues clashing with the European Commission over its budget deficit. The rhetoric on both sides remained defiant on Wednesday.

An Italian will take center-stage today. Mario Draghi, the President of the European Central Bank, will hold an hour-long press conference at 12:30 GMT. His press conference follows the rate decision by the Frankfurt-based institution. The ECB is projected to leave all policy measures unchanged: the main lending rate at 0%, the deposit rate at -0.40% and the pace of monthly bond purchases at €15 billion. The ECB reduced the QE scheme this month, en route to ultimately ending the program at the end of the year.

Recent inflation numbers have been weak, but growth remains OK. Draghi is likely to convey these messages as well as the intention to raise rates not before September 2019. He will be asked about the outlook for a rate hike, the EC clash with his country, and other topics.

If Draghi emphasizes growth and employment, the Euro could gain. If he expresses concerns about inflation and populism, the Euro could lose ground.

See: ECB: Draghi set to play risks down and keep the path of QE ending in December clear

The US will publish the Durable Goods Orders measure, a substantial gauge of investment that also feeds into tomorrow's GDP figure. The EUR/USD will likely focus on the ECB but may react later to the data. Comments from President Trump about stocks, blaming the Fed, cannot be ruled out.

EUR/USD Technical Analysis

The EUR/USD is trading below the 50 and 200 Simple Moving Averages on the four-hour chart. Also, Momentum is leaning lower, and the Relative Strength Index is not reflecting oversold conditions. All in all, the picture is bearish. The recent stability looks like a "dead cat bounce" pattern.

Support awaits at 1.1380, the trough seen on Wednesday. The next level to watch is 1.1300, the low point of 2018. Below, we are already back to levels last seen in 2017: 1.1220 and 1.1100.

Looking up, 1.1430 provided support to the pair twice during October and now switches to resistance. Further above, 1.1460 held the pair up early in the month, and the round number of 1.1500 was a swing low at the same time.

More: EUR/USD recovery looks limited ahead of the ECB – 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.

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