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EUR/USD Forecast: Deja-vu dead cat bounce with Italy's stagnation exacerbates the situation

  • The EUR/USD trades below 1.1400 once again, unable to recover.
  • Worries about Italy and Germany are balanced by some risk-on mood.
  • The technical picture is mixed for the pair.

The EUR/USD is trading below 1.1400 but refraining from the cycle lows of 1.1335. Italy's economy stagnated in the third quarter of 2018, worse than 0.1% expected. Year over year, the economy decelerated from 1.2% to 0.8%. The weak data also has implications for the clash over the budget deficit.

Italy remains in the limelight as the clash between the European Commission and the nation continues. The government led by Matteo Salvini and Luigi di Maio is set to submit the budget to parliament today despite the Commission's explicit rejection. As Italy has a high-debt-to-GDP ratio of around 130%, the EC wants a limit of 2%. Italy will raise money today in bond markets. 

German Chancellor Angela Merkel announced she would not be contesting the leadership of her party in December but that she will remain at her post until the next elections, due in 2021 but may come earlier.

The EUR/USD initially dropped but stabilized on the announcement that followed the very disappointing election results in Hesse, a region that is home to Frankfurt. 

While concerns about Italian and German politics weigh on the common currency, it receives support from a better market mood after US President Donald Trump expressed optimism about reaching a "great deal" with Chinese President Xi Jinping at the G-20 Summit in Buenos Aires in November. The rise in stocks pushes the greenback and the yen down against all other currencies.

The optimism followed reports that the US will present fresh tariffs on around $257 billion of Chinese goods in early December. These will include all remaining products that were not subject to duties in the previous round. The report sent stocks plunging, and Trump's interview with Fox News sent equities back up.

French GDP came out at 0.4% within expectations and the euro-zone figure is projected to stand at the same quarterly rate. 

Germany's states publish their preliminary Consumer Price Index measures throughout the morning with the all-German number due at 13:00 GMT. In the US, the Conference Board's Consumer Confidence for October will be of interest at 14:00. The gauge hit the highest levels in 18 years back in September.

EUR/USD Technical Analysis

EUR USD technical analysis October 30 2018

The EUR/USD suffers from downside Momentum and trades below the 50 and 200 Simple Moving Averages on the four-hour chart. These are all bearish signs. The Relative Strength Index does not point to any imminent move.

1.1360 was the low point in recent hours and provides initial support. Further down, 1.1335 was the swing low last week and is a significant support line. 1.1300 is not only a round number but also the 2018 low. Further down, 1.1220 and 1.1100 are notable.

1.1415 was the high point in recent days, and it is very close to the double bottom of 1.1430 that was visited twice in October. 1.1495 capped a recovery attempt in mid-October and 1.1550 was a swing high around the same time.

All in all, recovery attempts are being thwarted and follow the "dead cat bounce" pattern. The trend remains to the downside.

More: EUR/USD faces a hard-cap at 1.1390 on any recovery attempt – 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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