EUR/USD Forecast: Descending trend-channel caps additional gains ahead of a crucial week for Italian budget

Haresh Menghani FXStreet

The US Dollar sold off across the board on Friday after the Fed Vice Chairman Richard Clarida's dovish comments said that interest rates are nearing a neutral rate. Adding to this, the US President Donald Trump's optimistic trade-related comments, saying that the US may not have to impose further tariffs on China, further dented the greenback's safe-haven status. The anti-dollar flow helped the EUR/USD pair to extend its steady recovery from YTD lows and pushed through the 1.1400 handle, or over one-week tops.

The pair struggled to build on last week's strong up-move and traded with a mild negative bias on the first trading day of a crucial week for the Italian budget. Expectations that the EU could start the procedure to issue sanctions against the troubled country this Wednesday seemed holding investors back from placing any aggressive bets and might turn out to be one of the key factors leading to a lacklustre price action amid absent relevant market moving economic releases, either from the Euro-zone or the US.

Looking at the technical picture, the pair is retreating from one-month-old descending trend-channel resistance, also coinciding with 200-period SMA on the 4-hourly chart. Meanwhile, technical indicators on the mentioned chart are still holding comfortably in bullish territory and hence, any subsequent fall is likely to attract some fresh buying near the 1.1355-50 horizontal support. Failure to defend the said support might turn the pair vulnerable and is likely to accelerate the slide back towards testing sub-1.1300 level.

On the flip side, the mentioned confluence hurdle, currently near the 1.1420-25 region, might continue to hinder any positive momentum. However, a convincing break through the mentioned barrier will negate any near-term bearish bias and is likely to prompt some aggressive short-covering move, assisting the pair to aim back towards reclaiming the key 1.1500 psychological mark.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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