EUR/USD Forecast: Was the Fed dead cat bounce just another selling opportunity?

The EUR/USD made attempts to recover after the Fed but does not go too far.
A busy day with euro-zone inflation and the US ISM Non-Manufacturing PMI.
The technical picture remains bearish but oversold conditions may provide room for recovery.

Yohay Elam FXStreet

The EUR/USD is trading below $1.2000 as the dust settles after the Federal Reserve left the interest rate unchanged as expected. In the accompanying statement, the Fed described its inflation goal as symmetric, hinting that it may tolerate somewhat higher inflation. In addition, the Fed removed the phrase stating that the outlook has improved. These comments and some profit taking sent the US Dollar lower.

These moves did not last that long though. The greenback recovered and the EUR/USD reached new lows. The see-saw continues into the European morning. The pair is attempting to recover once again but seems unable to make a meaningful recovery. The dead cat bounce pattern may be in play once again.

All in all, the US economy is doing well, inflation is rising, and this is not necessarily the case in Europe.

The highlight of the European session is the initial inflation read for April. Headline CPI is expected to decelerate from 1.3% in March to 1.2% in April. Core inflation carries expectations for a drop from 1% to 0.9%. In the US session, the ISM Non-Manufacturing PMI is a forward-looking indicator for the largest sector in the US and also a hint toward the all-important Non-Farm Payrolls on Friday.

See: ISM Non-Manufacturing PMI Preview: Small slide to test the buck's bounds

EUR/USD Technical Analysis

The pair remains under the 200-day Simple Moving Average after breaking below that line earlier this week. This is a bearish sign. On the other hand, the RSI is below 30, pointing to oversold conditions.

The round $1.2000 level looms above. An early attempt to break higher failed. Further above, $1.2055 was the trough on April 27th and now serves as a line of support. $1.2090 was the peak in 2017 and works as weak resistance.

Looking down, the early-January low of $1.1920 is the next line to watch below the fresh swing low of $1.1947. $1.1820 was a stubborn level of support in December.

More: When are the Eurozone flash CPIs and how could they affect EUR/USD?

Author

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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