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EUR/USD Forecast: Uptrend support line in danger as King Dollar rules

  • The EUR/USD is under pressure, challenging the lows of the month.
  • A stabilization in euro-zone data is not enough to match rising US bond yields.
  • The technical picture is beginning to become bearish after an extended period of stability. 

The EUR/USD is trading around $1.2255, down some 0.25% on the day and extending its losses from the previous week. After a long period of disappointing data, the euro-zone enjoyed some good news. The forward-looking Purchasing Managers' Indices came out slightly better than expected, with the services sector standing out. All in all, Markit's composite euro-zone PMI held its ground at 55.2 points, above a drop to 54.9 that was expected. 

Nevertheless, there are stronger forces at play. 10-Year US Treasury bond yields continue rising, and the greenback rides higher with them. The global benchmark is nearing the closely watched 3% level and is at the highest levels since 2011. The rise in long-term interest rates is buoyed by OK US data last week and more importantly, by an eagerness of the Federal Reserve to raise rates.

The incoming President of the New York Fed John Williams stood out with an upbeat view of the economy and optimism about reaching the 2% inflation goal in a sustained manner. The most recent inflation read showed that Core CPI already reached the target with 2.1% YoY in March. However, the Fed eyes the Core PCE figure which is due next week and will likely remain below the mark.

Later today, Germany's central bank, the Bundesbank, publishes its monthly report. It will be interesting to see if they continue projecting robust growth in the eurozone's locomotive or acknowledge the slowdown. Later in the day, Markit releases the Flash PMI for the US. More importantly, US Existing Home Sales are forecast to show a steady annualized rate of 5.55 million units.

All in all, bond yields are likely to remain the principal driver for the pair today.

EUR/USD technical analysis - closer to uptrend support

EUR/USD Technical analysis April 23 2018

Darker clouds are gathering around the pair. The EUR/USD is now trading well below the 50-day Simple Moving Average. Moreover, the RSI, which clung to the 50 level, is now turning south. Momentum remains somewhat subdued. 

The thick black lines show the pair is trading in a narrowing wedge. Uptrend support is running from the February low of $1.2155 and meets the price at around $1.2245. A fall below this level will serve as another bearish sign.

The late March low of $12240 is quite close. Further down, $1.2210 is the next level to watch after it cushioned the pair in early April. The 1.2155 level awaits below.

Lookin up, $1.2300 held the pair up in mid-April and now switches to resistance. Higher, the 50-day SMA is at $1.2330 and last week's peak of $1.2413 is the last line to watch.

More: EUR/USD path of least resistance remains to the downside — 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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