|

EUR/USD Forecast: May bounce from oversold conditions but dual pressures persist

  • EUR/USD has been struggling to recover after upbeat US retail sales sent it down.
  • ECB officials' concerns have also added to downside pressures. 
  • Monday's four-hour chart portrays oversold conditions that may result in a bounce.

EUR/USD has been trying to lick its wounds and recover from two blows – so far with little success – and trades around 1.1200. 

The first downside pressure came from the upbeat US retail sales report. Consumers in the world's largest economy spent more than expected in May, with the all-important retail sales control group rising by 0.5%. Moreover, last month's robust data came on top of upwards revision for April. GDP growth forecasts for the second quarter have been revised upward by official and private forecasters alike – consumption is critical to the US economy.

See US Retail Sales: Reassurance for the Fed

More importantly, the upbeat data triggers a revision of the dovish expectations for Wednesday's Federal Reserve decision. Markets foresee a rate cut coming as soon as July, but the Fed is unlikely to rush to stimulate an economy which is seemingly firing on all engines. 

The dollar's reaction to the figures was slow and persistent, sending EUR/USD to 1.1200 at the end of a turbulent week.

See Fed Preview: Five factors that will rock USD in a critical decision

And then came the European Central Bank. 

ECB Vice President Luis de Guindos has said that the Frankfurt-based institution will act as inflation expectations are deteriorating. Benoit Coeure – another bank official which is usually restrained in his language – has said that market signs are "bleak" and that "risk may materialize." 

Both ECB members spoke at the eve of the bank's annual conference at Sintra, Portugal. President Mario Draghi will deliver opening remarks later today and may touch on monetary policy. He has recently expressed concern that markets are pricing in more than a slowdown – but perhaps a change in the post-war order.

Speculation about both central banks will likely set the tone today.

EUR/USD Technical Analysis

EUR USD technical analysis June 17 2019

EUR/USD is entering oversold conditions according to the Relative Strength Index on the four-hour chart – which is just below 30 at the time of writing. The dip implies a chance of a corrective rebound – at least in the short term.

Other technical indicators are bearish. The pair slipped below the 200 Simple Moving Average after losing the 100 SMA on Friday.

Initial support awaits at the round 1.1200 level which was the low point late last week. 1.1145 capped EUR/USD when it was trading at lower in late May and now turns into support. 1.1125 was a support line around that time and the 2019 low of 1.1107 is next down the line.

Looking up, 1.1225 is the daily high and the first line of resistance. 1.1270 provided support before the recent downturn and caps the pair now. 1.1290  and 1.1310 are next.

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.

More from Yohay Elam
Share:

Editor's Picks

AUD/USD rises to 0.6950 as USD slips on Fed's Warsh

AUD/USD regains traction and extends the bounce toward 0.6950 in the Asian session on Friday. Fed Chair Warsh's comments reinforce the selling pressure on the US Dollar, allowing the pair to stretch higher. Warsh said that he remains committed to delivering price stability without giving away anything on future interest rate path.

USD/JPY falls in symc with USD, gives up 158.00 after Warsh's speech

USD/JPY has come under fresh selling pressure and gives up 158.00 in the Asian session on Friday amid the emergence of fresh US Dollar selling. Fed Chair Warsh's non-committal commentary on the future tightening path, weighs on the US Dollar and the pair.

Gold looks vacillating above $4,150

Gold alternates gains with losses below the key $4,200 mark per troy ounce on Friday. The yellow metal’s irresolute price action comes in response to a modest pullback in the US Dollar and a tepid recovery in US Treasury yields across the board.

Bitcoin steadies at $82,000: The five forces crushing the Uptober rally

Crypto markets have remained under pressure so far in October, with Bitcoin (BTC) sliding below $80,000 earlier this week before recovering to around $82,000 on Friday, as macroeconomic headwinds and cooling demand weigh on the market.

The Fed just got a second hot inflation number. Here's what the diesel signal is really saying
The Federal Reserve (Fed) faces a renewed inflation challenge after two consecutive reports showed price pressure intensifying across the US economy. September's Consumer Price Index (CPI) confirmed accelerating consumer inflation, while the Producer Price Index (PPI) revealed an even sharper rise in business costs. Behind both reports lies a common factor: energy prices.
Everyone's dumping Gold after hot US inflation. Here's why $4,100 could be a floor, not a cliff
Gold (XAU/USD) is recovering from a sharp sell-off triggered by hotter-than-expected United States (US) inflation data released on Wednesday. The precious metal briefly plunged toward $4,073 as investors increased their bets on further Federal Reserve (Fed) interest rate hikes before recovering as US Treasury yields and the US Dollar (USD) reversed their initial gains.