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EUR/USD Forecast: The Good, the Bad, and the Ugly, still looking vulnerable

  • EUR/USD recovered Brexit and US-Chinese talks.
  • Italy has not budged, Brexit is volatile, and German contraction weighs.
  • Technically, the pair will need to feel comfortable above 1.1300 to convince more buyers.

EUR/USD is trading around 1.1300, significantly up from the 17-month lows of 1.1215 recorded on Tuesday.

The Good: Brexit breakthrough, US-Chinese talks

The European Union and Britain have finally agreed on a withdrawal agreement or a Brexit deal. Intense negotiations resulted in a compromise on the question of the Irish border.

The agreement maintains an open border between Northern Ireland and the Republic of Ireland while keeping the rest of the UK in a customs union of sorts. There is a review mechanism included according to reports. While the full details are yet to come, politicians have already expressed their opinions, and it seems that Prime Minister Theresa May will have a hard time pushing the agreement. The UK Cabinet convenes today to approve the deal and to secure an EU Summit later this month. The more significant hurdle will be mustering support in Parliament. 

The Pound's volatility has significantly increased, and the Euro feels some of the secondary effects. 

The world's most popular currency pair enjoyed the improving atmosphere in talks between China and the US. Top White House Economic Adviser Larry Kudlow expressed optimism and said that discussions are open on all levels. Presidents Donald Trump and Xi Jinping are on course to meet in Buenos Aires at the end of the month. The upbeat mood diminishes demand for the safe-haven US Dollar.

The Bad: Italian crisis continues, German contraction

Back to the old continent, things are not that rosy. The Italian government decided to maintain its budget untouched, with the same budget deficit and growth forecasts that the European Commission rejected. This defiance is likely to result in a disciplinary procedure against the euro zone's third-largest economy. Spreads between Italian bonds and the safe-haven German bunds will be eyed. 

Germany has issues of its own: the economy shrank by 0.2% in Q3 2018, worse than 0.1% expected. While an outright recession is currently discarded, the 19-currency bloc will find it hard to recover if the so-called "locomotive is not moving. The euro-zone will publish updated GDP numbers later today. After the German disappointment, a downgrade from a growth rate of 0.2% cannot be ruled out.

The US publishes inflation figures at 13:30 GMT. The most significant number, Core CPI YoY, is projected to remain unchanged at 2.2% according to the economic calendar.

See: US Inflation Preview: Stability in core CPI, temporary gain in consumer index

The Federal Reserve is watching these figures carefully. Fed Chair Jerome Powell will speak in Texas and is unlikely to deviate from the central message: the path of gradual rate hikes will continue.

The Ugly: Technically, the pair recaptured support, but it's a downtrend one

EUR USD technical analysis November 14 2018

EUR/USD made more than a "dead cat bounce" from the lows, contrary to previous recoveries. It also captured the lost support line, but this is the bottom of a downtrend channel, therefore not very promising. Moreover, the pair failed in its first attempt to reconquer 1.1300. The level is not only a round number but also a critical line after working as a double-bottom. 

The Relative Strength Index (RSI) is out of oversold territory (below 30), but Momentum still points to the downside. 

Support awaits at 1.1260 which temporarily capped the EUR/USD on Tuesday. 1.1215 is the 17-month low. Further down, we are back to levels last seen in 2017: 1.1110 and 1.1000 are notable. 

Looking up below 1.1300, 1.1320 was the high point of the recovery earlier in the day. 1.1355 was a swing low last week and almost entirely coincides with the 50 Simple Moving Average on the four-hour chart. 1.1400 provided support last week and is next in line. 

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
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