|

EUR/USD Forecast: Not out of the woods yet, remains vulnerable to slide further

  • A combination of diverging forces failed to provide any meaningful impetus to EUR/USD.
  • Concerns about the third wave of COVID-19 infections weighed on the shared currency.
  • The risk-on mood undermined the safe-haven USD and helped limit any meaningful slide.

The EUR/USD pair lacked any firm directional bias and seesawed between tepid gains/minor losses through the early part of the European session on Monday. The shared currency remained on the defensive amid concerns that the third wave of COVID-19 infections and pandemic-related restrictions in Europe could derail the fragile economic recovery amid the slow pace of vaccinations. This, in turn, was seen as a key factor that kept a lid on the pair's attempted recovery from the 1.1700 mark, or near five-month lows touched last week. However, a subdued US dollar price action extended some support to the major and helped limit any further losses, at least for now.

The USD struggled to capitalize on Friday's positive move led by blockbuster US monthly jobs report, which showed that the economy added 916K new jobs in March. This marked the third consecutive month of growth in employment and the largest gain since last August. Adding to this, February's reading was also revised higher to 468K as against 379K reported previously and the unemployment rate fell to 6.0% from 6.2% previous. The data reinforced the prospects for a relatively faster US economic recovery from the pandemic. This, along with the Biden administration's planned stimulus of more than $2 trillion, fueled speculations about a possible uptick in US inflation.

The developments raised doubts that the Fed will retain ultra-low interest rates for a longer period and pushed the yield on the benchmark 10-year US government bond back above the 1.70% threshold. The USD bulls, however, seemed rather unimpressed by the supporting factors, instead took cues from a generally positive tone around the equity markets. The prevalent risk-on environment undermined the safe-haven greenback and seemed to be the only factor lending some support to the major. Market participants now look forward to the release of the US ISM Services PMI for some impetus amid relatively thin liquidity conditions on the back of the Easter Monday holiday in European markets.

Short-term technical outlook

From a technical perspective, the pair's inability to gain any meaningful traction supports prospects for an extension of the recent downward trajectory. That said, bearish traders are likely to wait for some follow-through selling below the 1.1700 mark before positioning for any further depreciating move. The pair might then turn vulnerable to accelerate the fall towards testing the 1.1620-15 support area. This is closely followed by the 1.1600 mark, which if broken should pave the way for a slide towards challenging the key 1.1500 psychological mark.

On the flip side, any meaningful upside is likely to confront a stiff resistance and runs the risk of fizzling out rather quickly near the 1.1800 mark. However, a sustained strength beyond might trigger a short-covering move and push the pair back towards the 1.1860 strong support breakpoint. The mentioned area marks the very important 200-day SMA, which should be a tough nut to crack for bullish traders.

fxsoriginal

Author

Haresh Menghani

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

More from Haresh Menghani
Share:

Editor's Picks

AUD/USD bulls regain control above 0.6950 amid USD retreat

AUD/USD regains traction and extends the previous day's bounce from the weekly low, aiming for 0.7000 in Asia on Friday. The overnight pullback in US bond yields keeps the US Dollar below an 18-month high, which in turn offers some support to the pair. Meanwhile, hawkish RBA expectations also keep the major underpinned.

USD/JPY holds gains near 158.00 after Japan's weak Household Spending data

USD/JPY clings to gains around 158.00 after data showed on Friday that Japan's Household Spending fell for the ninth straight month, undermining the Japanese Yen. Meanwhile, the US Dollar remains depressed as the overnight fall in US bond yields counters a hawkish Fed and geopolitical uncertainties, could cap any downside in the pair.

Gold remains range-bound below $4,200

Gold has given up some ground after an initial bullish attempt to reach weekly highs, returning to below the $4,200 mark per troy ounce on Friday. The US Dollar’s strong upside momentum, combined with rising US Treasury yields across the curve, seems to keep further gains in the yellow metal under scrutiny.

Week ahead: US CPI, France’s budget crisis and Q3 earnings to set the market tone
The US dollar held relatively strong this week, despite the disappointing US jobs report on October 2, which further decreased the probability of a back-to-back rate hike by the Fed at the upcoming gathering on October 28.
CFTC Report: Euro and Aussie shorts expand amid diverging signals

The week in one sentence: Euro and Australian Dollar shorts deepened in the week to October 6, while Yen longs rebuilt. In addition, Coffee buying continued, and Gold exposure remained elevated despite another price decline. Speculators turned more negative on the Euro, increasing the net exposure to around 99.3K contracts.

Has Bitcoin really escaped the macro forces it was built to fight?
Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?