EUR/USD Forecast: Tepid bounce amid a pause in risk-off trading

EUR/USD Current Price: 1.0834

• Recession-related fears and their effects on government bond yields set the tone for the greenback.
• Wall Street advances for a second consecutive day as market players focus on earnings.
• EUR/USD is in a corrective advance but needs to move beyond 1.0920 to confirm a sustained rally.

The EUR/USD pair posted modest gains early on Wednesday, peaking at 1.0866. The American currency appreciated as US government bond yields kept rallying to multi-year highs amid recession fears. But it is not a problem exclusive to the US. Most major economies are struggling to control inflation and its consequences. The Bank of Japan jumped to buy an unlimited amount of JGBs at 0.25% in an attempt to defend its yield target after it touched its upper limit.

Meanwhile, Atlanta Fed President Raphael Bostic and Chicago Fed President Charles Evans cooled down expectations triggered by St. Louis counterpart James Bullard, who came up with the idea of a 75 bps hike. Still, real yields have turned positive for the first time since the pandemic began, as the 10-year Treasury note yielded as much as 2.981% ahead of the opening. The US Federal Reserve is set to drain liquidity off markets, something that would certainly take its toll on high-yielding assets.

European indexes managed to post modest gains, but US ones are extending their Tuesday recoveries, further weighing on the American currency.

The macroeconomic calendar has offered the March Producer Price Index, which soared to 30.9% YoY. The EU published February Industrial Production, up 2% YoY and the Trade Balance for the same month, which posted a seasonally adjusted deficit of €-9.4 billion. As for the US, the country published MBA Mortgage Applications for the week ended April 15, which declined by 5%. More US Federal Reserve officials will be on the wires later today. 

EUR/USD short-term technical outlook

The EUR/USD pair is up for a second consecutive day but far from turning bullish. It has briefly surpassed the 23.6% retracement of its latest daily decline measured between 1.1184 and 1.0756 at 1.0856, an immediate resistance level. The next Fibonacci retracement comes at 1.0920, and recovery beyond it could put the pair on a near-term bullish path.

Technical readings in the daily chart suggest that the risk is skewed to the downside. The 20-SMA is heading firmly lower, converging with the 38.2% retracement of the aforementioned decline, as technical indicators recover from near oversold readings, still well below their midlines.

The 4-hour chart favours another leg north, particularly if the pair moves above the aforementioned Fibonacci resistance. The pair is developing above a now flat 20-SMA, while the longer ones maintain their bearish slopes well above the current level. Technical indicators, in the meantime, are neutral-to-bullish within positive levels, reflecting absent selling interest for the time being.

 Support levels: 1.0795 1.0760 1.0720

Resistance levels:1.0865 1.0920 1.0970

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