EUR/USD Price Forecast – EUR/USD Maintains Positive Price Action As IT-DE Spread Difference Continues To Decline

European desks may put a strong bid under the EUR, tracking the slide in the treasury yields
Colin First
EURUSD Tuesday
EURUSD Tuesday

The EUR/USD pair had a good two-way move at the start of a new trading week and was exclusively driven by the US Dollar price dynamics. Investors responded positively to the US-China trade truce, which was evident from solid gains across global equity markets. A momentarily halt in the trade-war between the world’s two largest economies exerted some fresh downward pressure on the greenback and assisted the pair to build on its weekly bullish gap. The positive momentum lifted the pair to an intraday high level of 1.1380, though a late USD rebound kept a lid on any follow-through up-move. The buck got an additional boost following the release of stronger than expected US ISM manufacturing PMI for November and dragged the pair back to the 1.1320 region, filling the weekly gap.

US Treasury Yield Moving Down Helped EURO Gain Upward Momentum

However, improving risk appetite helped limit any immediate sharp downfall and the pair finally ended the day near mid-1.1300’s. The pair regained positive traction during the Asian session on Tuesday and was now supported by some renewed USD selling bias. Declining US Treasury bond yields, with yields on the benchmark 10-year bond sliding further below the 3.0% psychological mark, undermined the USD demand and turned out to be one of the key factors driving the pair higher. The Italy-German 10-year bond yield spread also continues to fall, signaling easing concerns about Italy’s fiscal issues which is positive for EURO. As of writing this article, EURUSD pair traded at 1.1373 up by 0.15% on the day. In absence of any major market moving economic releases, either from the Euro-zone or the US, broader market sentiment surrounding the greenback might continue to play an important role in influencing the pair’s price action.

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When looking from technical perspective, the pair is currently placed near an important confluence resistance, around the 1.1380-85 region, comprising of a short-term descending trend-line and 200-period SMA on the 4-hourly chart. A convincing breakthrough the mentioned hurdle might trigger a short-covering move beyond the 1.1400 handle towards its next resistance near the 1.1425-35 supply zone. On the flip side, the 1.1340 horizontal zone now seems to act as an immediate support, below which the pair is likely to head back towards challenging the 1.1300 round figure mark. A sustained weakness the mentioned handle will further reinforce the near-term bearish bias and accelerate the slide back towards yearly lows, around the 1.1215 region.

 

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