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EUR/USD Forecast: Riding higher on uptrend support on some (temporary?) calm

  • EUR/USD is recovering from the lows seen yesterday.
  • A better market mood helps as news about Italy is awaited.
  • The technical picture looks positive for the pair.

EUR/USD is trading around 1.1400, up on the day as the market mood improves. Stocks, oil, and also Italian bonds are ticking higher after a down day on Tuesday. The crash sent the pair lower but things look calmer now. The US Dollar attracted safe-haven flows on Tuesday and is now taking a breather. Another effect of the rout was that a rate hike in the euro-zone is not fully priced in for 2019. 

The European Commission is set to deliver its word on Italy after the third-largest economy economy rejected the demands to lower the budget deficit. Italian Interior Minister Matteo Salvini has reportedly offered to negotiate with Brussels, a move that also supports the pair. Brussels is set to make an announcement around 11:00 GMT and it may begin a disciplinary process. 

Spreads between Italian 10-year bond yields and the benchmark German bunds are around 313 basis points at the time of writing, off the highs. A drop of the spread below 300bp can help the common currency. 

Brexit impact

Brexit's effect on EUR/USD has diminished but may return. UK PM Theresa May seems to have survived an attempt to challenge her leadership. The political stability helps the Pound and marginally affects the Euro.

Ahead of the EU Summit on Brexit on Sunday, Spain has expressed reservations about Gibraltar, the tiny piece of British land on the Iberian peninsula. The long 500-page Withdrawal Agreement will likely remain unchanged, but the political declaration, about the future relationship, may be changed or enlarged from around seven pages to 20. Brexit headlines may return to move the common currency.

US data and stock moves ahead of Thanksgiving

In the US, a big bulk of economic figures is due later in the day. Durable Goods Orders for October will be of interest. The numbers reflect investment that has been weak in recent months and has been noted by the Fed in its recent rate decision. The publication gives a first look into Q4.

See: US Durable Goods Orders Preview: Business investment to resume

Another significant release is Existing Home Sales. The housing sector has been on the back foot in recent months. Another drop could also serve to slow down expectations for a rate hike by the Fed. In addition, weekly jobless claims and the final version of Consumer Sentiment from the University of Michigan are eyed.

Some of the publications have been brought forward due to the Thanksgiving holiday tomorrow. We may see some choppy, pre-holiday market movements in the US session.

Trade talks between China and the US are not going anywhere fast. The US Treasury published a report about China's unfair practices, in what seems like a means to put pressure on the world's second-largest economy ahead of the G-20 Summit. Presidents Donald Trump and Xi Jinping are set to meet in Buenos Aires at the end of the month.

Will the calm in stock markets roll into the US session? Or are we in for another down day?

The moves in equity prices could be critical for the next EUR/USD moves

EUR/USD Technical Analysis

EUR USD November 21 2018 technical analysis

EUR/USD is trading alongside an uptrend support line that was formed when the pair hit the 17-month low of 1.1215. It also topped the 50 Simple Moving Average on the four-hour chart and the Relative Strength Index is balanced, out of overbought territory. All are bullish signs.

1.1420 capped EUR/USD late last week and is immediate resistance. 1.1475 was the high point earlier this week, before the downfall. 1.1500 was the high point in November. 1.1550 and 1.1620 are next up.

1.1395 is weak support: it cushioned the pair's fall early in the week and also early in the month. 1.1355 was the low point on Tuesday and also a trough in early November. The former double-bottom of 1.1300 is next down the line.

More: EUR/USD is locked in a tight range but the upside is slightly more appealing – Confluence Detector

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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