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EUR/USD Price Forecast – EUR/USD Range Bound Over Fear Of Possible Curve Inversion Renewal

By:
Colin First
Published: Dec 20, 2018, 06:43 UTC

The renewed fears of curve inversion could push the EUR/USD higher

EURUSD Thursday

The EUR/USD pair moved to the downside after the Federal Reserve delivered a “dovish” rate hike. The pair was trading around 1.1430 and dropped quickly below 1.1400 following the release of the statement and the updated projections. The pair hit an intra-day low at 1.1377 during early Asian market hours and is currently trading at 1.1388 up by 0.11% on the day. The US central bank, as expected raised the key interest rate to 2.25%-2.50% up by 25 basis points and delivered a less dovish than expected forward guidance.

Fed Forward Guidance Has Renewed Fears of Curve Inversion

Regarding forecasts Fed signaled now two rate hikes for 2019 versus three seen in September estimates which boosted US dollar across the board while US dollar index which measures the strength of dollar against six major global currencies also erased losses from early week following fed update. However the news of two rate hikes in 2019 caused US Wall Street and Gold to slide sharply. Investors and analysts now fear that Fed’s hawkish hike may hasten curve inversion. Simply put, markets are now behind the curve. As a result, the short-term bond yields could rise sharply, leading to a faster drop in the spread between the 10-year and two-year Treasury yield and renew fears of curve inversion.

An inverted curve is widely considered an indicator of recession. The USD therefore could be offered across the board due to heightened odds of curve inversion which affects the medium term outlook of US Greenback. In the meanwhile EUR bulls still haven’t lost ground despite drop in price action overnight and has maintained range bound price action which suggests lack of clear directional bias. When looking from technical perspective, both bulls and bears have some level of grip on price action and for bullish breakout to be confirmed the pair should breach resistance at 1.1403 and 1.1445 zone. On the flip side a breach below 1.1355 and 1.1330 will confirm bears grip on pair’s price action.

About the Author

Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.

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