EUR/USD: Is the pullback a bear trap?


  • EUR/USD dropped on Tuesday on ECB's inflation concerns. 
  • But, the dip could be short-lived as markets aren't buying the Fed's hawkish dot plot. 

The EUR/USD pair fell from 1.2476 to 1.2372 on Tuesday after the ECB officials stressed the need to be patient in removing stimulus and the Eurozone confidence numbers missed estimates. 

Despite the pullback, the immediate outlook remains bullish as suggested by the bullish momentum studies - 5, 10, and 21 DMAs are trending higher, indicating a bullish setup. Also, the relative strength index (RSI) adopted bullish bias following the EUR's convincing move above the descending trendline (drawn from the Feb. 16 high and March 8 high). 

Further, the Fed revised higher the neutral rate last week, however, the market isn't buying the hawkish talk. This is evident from the fact that short-term interest rate futures are discounting only about 75 basis points of tightening until the end of 2019, according to Reuters report. Consequently, an argument could be put forward that USD rallies (dip in EUR/USD) will likely be short-lived. 

As for today, the common currency may drop against the greenback if the US Q4 GDP (due at 12:30 GMT) is revised higher. Kathy Lien from BK Asset Management expects stronger data (US GDP and pending home sales) to boost the dollar but believes these reports are not significant enough to alter market sentiment, which is this week's primary driver of market flows. 

EUR/USD Technical Levels

FXStreet's Yohay Elam writes - "Support levels are to be found approximately at 1.2330 and 1.2260 accordingly to the Confluence Indicator. Vestiges of demand can be seen around 1.2320and below at 1.2280, based on aggregated trading positions from FXStreet's dedicated contributors. On the upside, there are clusters of resistance at 1.2420 and 1.2445. From a positioning perspective, supply is noted at 1.2450 and above.1.2555."

  TREND INDEX OB/OS INDEX VOLATILY INDEX
15M Neutral High
1H Bearish Overbought Low
4H Bullish Neutral Expanding
1D Bearish Neutral Expanding
1W Bearish Neutral Expanding

 

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