|

EUR/USD Forecast: Surges over the triple-top but a reality check may be near

  • EUR/USD has been rising in response to growing speculation of a rate cut in the US.
  • Euro-zone inflation data may serve as a reminder that Europe has its own troubles.
  • Tuesday's four-hour chart shows EUR/USD has broken above the triple-top but suffers from overbought conditions.

EUR/USD is experiencing schadenfreude – a German word meaning pleasure derived from someone else's misfortune. The world's most-popular currency pair is on the rise as speculation of a US rate cut mounts. 

Saint Louis Fed President James Bullard has said that the Federal Reserve should cut interest rates soon as inflation is weak and trade tensions create rising uncertainty – echoing market sentiment. Despite being a known dove, Bullard's words exacerbated the USD sell-off.

The greenback was already on the back foot after US ISM Manufacturing PMI missed expectations with 52.1 points – the lowest in 31 months. Moreover,  US-Sino tensions expanded to visas for Chinese studying in the US. The world's largest economies continue tussling over technology and continue accusing each other of the failure of trade talks. Yields on 10-year and 2-year bonds have extended their drops, making the USD less attractive. 

Yet things are not so rosy in the old continent as the fallout from the European elections threatens fragile coalitions. Italian PM Giuseppe Conte – which is not affiliated with any party – has warned the two collation partners to stop squabbling and hinted he might step down. Relations between the League and the 5-Star Movement have been tense since the former beat the latter in elections. Moreover, both populist parties have differences over the budget and especially tax cuts. 

The political situation in Germany – the continent's largest economy – is also of concern to markets. Chancellor Angela Merkel's government has received a lifeline from the SPD's decision to stay in government. However, the center-left junior coalition partner has decided to hold a review of the partnership in the autumn. The party's failure at the ballot box triggered the resignation of its leader Andrea Nahles – a key figure in bringing about the grand coalition.

The common currency's troubles do not end with politics. Preliminary inflation figures for May are due today – an essential input for the all-important ECB decision on Thursday – and expectations are low. Consumer price index hit a high of 1.7%, and core CPI reached 1.3% year on year. However, that was only due to the change in the timing of Easter. A significant slowdown is projected now – potentially prompting a downgrade in the bank's forecasts – and consequently a potential drop in the value of the common currency. 

See Euro-zone inflation preview: Core CPI is the key ahead of the ECB – Three scenarios for EUR/USD

The next events to watch out for are speeches by Federal Reserve Chair Jerome Powell and New York President who will speak later in the day and may shed more light on the Fed's thinking. Powell currently maintains his patient stance on interest rate – no more hikes but no cuts either.

Overall, if euro-zone inflation drops as expected and Powell keeps the door closed on rate cuts, EUR/USD may reverse its gains.

EUR/USD Technical Analysis

EUR USD technical analysis June 4 2019

The Relative Strength Index on the four-hour chart is at 77 – well above 70 – and thus reflecting overbought conditions and signaling a possible downward correction. 

On the other hand, EUR/USD surged above 1.1265, which capped the currency pair three times between late April and mid-May. Breaking above a significant resistance level indicates further gains – but EUR/USD has had its share of false breaks.

The next resistance line is close. 1.1280 provided support in mid-April and now turns into resistance. Further up, 1.1305 capped a recovery attempt around the same time, and 1.1325 was the high point in April. 

Below 1.1265, the first noteworthy support line is 1.1218, which was a high point in late May. It is followed by 1.1190 which held EUR/USD down in early June and served as support beforehand. 1.1145 capped euro/dollar when it traded at a lower range in late May. 

More EUR/USD has room to run all the way to 1.1370 after breaking higher – 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.

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.