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EUR/USD Forecast: Entering oversold territory but bears look stronger on Italy's deficit, USD strength

  • The Italian government approved a deficit of 2.4%, breaching EU rules.
  • A busy day of indicators ends the quarter as the Fed is still heard.
  • The pair is entering oversold conditions, but the bears are in control.

The EUR/USD is trading closer to 1.1600, extending the losses seen on Thursday. The Italian government approved a deficit of 2.4%, higher than the 2% target and 1.6% that Finance Minister Giovanni Tria wanted. The move triggers a sell-off in Italian bonds and also weighs on the Euro. Tria, a technocrat, stays in his position, for now, to "prevent chaos" as he said.

The EUR/USD is also on the back foot due to USD strength. The greenback enjoyed a confirmation of the robust 4.2% annualized growth rate in Q2. The Durable Goods Orders report was mostly positive with an increase of 4.5% on the headline but less impressive core figures.

Also, markets continue digesting the Fed's rate decision. The central bank raised rates and signaled four additional ones through 2019. Fed Chair Jerome Powell spoke again on Thursday and said that the economy is strong, employment is high, and inflation is low. At Wednesday's press conference, Powell was upbeat and clarified that the removal of the words "accommodative policy" does not signal a shift in policy.

The last day of the week, month and quarter may see erratic movements. Money managers may need to adjust their portfolios in the last minute. Also, the economic calendar is packed with events. The flash estimate of euro-zone inflation will likely beat expectations after Germany's numbers came out above expectations. Earlier in the week, ECB President Mario Draghi said that inflation is on the rise.

How to trade the Euro-zone CPI Inflation with EUR/USD

The US publishes the Core PCE Price Index later on. The indicator is the Fed's preferred inflation measure. And it is projected to drop off the 2% level. The publication lags the Core CPI number which was already released. Also, Personal Income, Personal Spending, and the final version of the University of Michigan's Consumer Sentiment are released.

Comments by US President Donald Trump about the rate hike and trade may move markets. Americans were glued to the screens watching the testimonies of Supreme Court nominee Brett Kavanagh and Cristine Blasey-Ford that accused him of sexual assault. Republicans want to push through with his nomination, and this may hurt them in the mid-term elections and have an impact on markets.

EUR/USD Technical Analysis

EUR USD technical analysis September 28 2018

The EUR/USD is trading challenging the 200 Simple Moving Average on the four-hour chart after having lost the 200 one earlier on. Momentum is sharply lower, but the Relative Strength Index is dipping below 30, indicating oversold conditions. Will this result in bounce for the pair? Bears seem to be in control for now.

Below the 200 SMA, support awaits at 1.1605, which supported the pair in mid-September. 1.1565 was a low point two weeks ago, and the most critical support line is 1.1530, a triple bottom.

1.1690 was a pivotal line in last week's trading. 1.1720 switches back to resistance, a role it played in mid-September before switching to support. 1.1750 was a quadruple top in July and the recent peak of 1.1815, the highest since July, is the last line to watch.

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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