EUR/USD Forecast: Dead cat bounce on Italian deadline day

EUR/USD remains on the back foot but off the lows.
The Italian crisis comes to a head on deadline day.
The technical picture is mostly negative but with some silver linings.

Yohay Elam FXStreet

The EUR/USD is trading in the lower half of the 1.1200 handle but off the 17-month low of 1.1215 set on Monday. The recovery from Monday's downfall is minimal and the chart shows a "dead cat bounce" pattern.

Italy remains in the spotlight. The third-largest economy in the euro-zone is set to respond to the European Commission's rejection of the Italian budget today. So far, Italy's coalition partners have been defiant on sticking to the 2.4% deficit. An Italian watchdog calculated a deficit of 2.6% if the government follows its plans. Brussels demands a limit of 2% as the country has the second-highest debt-to-GDP ratio.

If the current situation continues, the European Commission may initiate a disciplinary procedure. European Commission President Jean-Claude Juncker expressed his dissatisfaction with the current situation.

However, there are signs of willingness to compromise from Rome. According to fresh reports, Economy Minister Giovanni Tria is set to reduce the growth estimate for 2019. The EC dismissed the projections as far too optimistic, especially after the economy stagnated in the third quarter. Italian headlines are set to dominate.

Also, Germany's ZEW Economic Sentiment is due to show ongoing pessimism in the largest economy. Germany is forecast to report shrinking economic output in the third quarter on Wednesday. Preview: Outright contraction could send the Euro even lower, regardless of expectations

US traders are returning from their partial holiday. Stock markets dropped on Monday due to concerns about tech stocks, and this supported the greenback, already buoyed by the Fed's hawkishness. FOMC members Lael Brainard and Neel Kashkari will speak later in the day.

On the other hand, market sentiment has improved as trade talks between China and the US are resuming head of the Summit between US President Donald Trump and his Chinese counterpart Xi Jinping at the end of the month.

EUR/USD Technical Analysis

Examining the four-hour chart, we see considerable downside Momentum and the pair breaking below the downtrend channel (thick black lines) that accompanies it since early October.

However, the Relative Strength Index is just around 30, the level that implies oversold conditions. Will the pair break or bounce?

Immediate support is at 1.1215, which is the lowest level since June 2017. Further down, 1.1110 provided support back then and remains relevant. The round number of 1.1000 awaits below.

1.1260 was the high point earlier in the day and is a weak line of resistance. 1.1300 was the double-bottom that held the EUR/USD up for a long time but was decisively broken. 1.1330 served as support in late October.

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.

EUR/USD flirts with daily highs, retargets 1.1900

EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.

GBP/USD remains well bid around 1.3650

GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.

Gold holds above $5,000 as bears seem hesitant amid Fed rate cut bets

Gold edges lower at the start of a new week, though it defends the $5,000 psychological mark through the Asian session. The underlying bullish sentiment is seen acting as a headwind for the bullion. However, bets for more rate cuts by the Fed, bolstered by Friday's softer US CPI, keep the US Dollar bulls on the defensive and continue to support the non-yielding yellow metal as the focus now shifts to FOMC Minutes on Wednesday.

Week ahead: Data blitz, Fed Minutes and RBNZ decision in the spotlight

The US jobs report for January, which was delayed slightly, didn’t do the dovish Fed bets any favours, as expectations of a soft print did not materialize, confounding the raft of weak job indicators seen in the prior week.

Global inflation watch: Signs of cooling services inflation

Realized inflation landed close to expectations in January, as negative base effects weighed on the annual rates. Remaining sticky inflation is largely explained by services, while tariff-driven goods inflation remains limited even in the US.

Ripple Price Forecast: XRP potential bottom could be in sight

Ripple edges up above the intraday low of $1.35 at the time of writing on Friday amid mixed price actions across the crypto market. The remittance token failed to hold support at $1.40 the previous day, reflecting risk-off sentiment amid a decline in retail and institutional sentiment.