EUR/USD Forecast: King Dollar rules supreme but is the pair already oversold?

The EUR/USD trades at the lowest levels since mid-January, fueled mostly by USD strength.
Mediocre euro-zone data is not helping and the US GDP could provide another blow.
The technical picture points to emerging oversold conditions.

The EUR/USD is trading around $1.2070, suffering the third day of sharp falls. The US Dollar continues gaining traction across the board.

Three reasons for the USD rally

This time, it is not only about the bond yields. The 10-year benchmark fell from the highs of 3.033% to below 3%. Nevertheless, the elevated level continues supporting the greenback.

Another source of strength for the American currency comes from hopes for resolution on trade relations with China. Top White House Economic Adviser Larry Kudlow has expressed optimism on reaching an agreement with the world's No. 2 economy on the eve of his trip across the Pacific. The mood around tariffs has had its ups and downs in recent weeks and this upturn also feeds into the US Dollar's rally.

A third source for the greenback's gains comes from higher expectations from the first estimate of US GDP coming out at 12:30 GMT. The Durable Goods Orders report for March that was published on Thursday beat expectations on the headline and the figure adds to the GDP. However, the flat read on Core Orders paints a mixed picture.

The US is forecast to report an annualized growth rate of 2.3% in Q1, down from 2.9% in the final read for Q4 2017.

See:

Mediocre euro-zone

In the euro-zone, things do not look that great. The EUR/USD initially rallied when ECB President called the recent slowdown a "moderation" and listed temporary factors. He also said that the decline has stabilized and that the indicators are above historical averages. However, the cautious approach and the uncertainty about the QE program provided ammunition for the EUR/USD bears once the dust settled and the US Dollar gained fresh strength.

Data coming out on Friday in the euro-zone mostly missed expectations. Spanish CPI came out at 1.1% YoY, below 1.2% expected. Spanish GDP came out at 0.7%, meeting early estimates. In France, CPI came out at 0.1%, bang on expectations, while GDP fell short with 0.3% against 0.4% that had been projected.

All in all, economic data looks much better in the US, justifying the fall in the EUR/USD.

EUR/USD Technical Analysis - Oversold?

The RSI on the daily chart is touching the 30 level, which is the entry point into oversold territory. Momentum is heavily tilted to the downside. Bears have had their share and may be exhausted at this point.

Support awaits at the $1.2000 level which is not only a round number but also where the 200-day Simple Moving Average meets the chart, making it a key level. Further below, $1.1920 was a trough early in the year and is the next level to watch.

On the topside, the 2017 peak of $1.2090 serves as resistance. It is followed by the March 1st low of $1.2155 and $1.2210 follows.

More: EUR/USD has new downside targets and fierce upside resistance — Confluence Detector

Share: Analysis feed

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.