EUR/USD Price Forecast – EUR/USD Turns Dovish On Broad Based Demand For USD

EUR/USD turned dovish overnight on broad based demand for USD but the downward price action was capped owing to fear of economic slowdown in US as evident from fall in US T.Yields despite hawkish comments from FOMC members and decline in US equities.
Colin First
EURUSD Wednesday
EURUSD Wednesday

The EURUSD pair moves down on increased demand for US Greenback but downside move was limited thanks to US yield curve inversion. The EUR/USD pair traded as high as 1.1418 yesterday but was unable to hold on to gains above the 1.1400 mark once again turning negative during US trading hours with an intra-day swing of over 150-pips making it a highly volatile session. The positive momentum in high-yielding assets triggered by weekend news related to the trade war completely fizzled out during yesterday’s trading session while most major indices across the globe closed for the day in red. Even a positive tweet from US President Donald Trump on possibility of trade deal with China failed to bring about influence a positive rally for EURO & other high risk assets. As of writing this article, EURUSD pair is trading at 1.1322 down by 0.19% on the day. US Treasury yields eased from their highs, despite Fed’s speakers sounding more confident than the gloomy chief Powell.

Treasury Yields Continue To Fall Despite Hawkish Comments From FOMC Members

During speech yesterday FOMC member Williams said that he sees further gradual hikes over “the next year or so,” adding that the Fed could change forward guidance but that the dot-plot will remain. However Wall Street saw a bearish rout as US Treasury Yields softened renewing concerns of a yield curve inversion which is widely regarded as a sign of economic slowdown. The spread between the 5- and 2-year treasury yields turned negative (inverted) yesterday. Further, the gap between 10-year and 2-year yield has narrowed to 11 basis points and could soon turn negative. This has had a highly negative impact on market yesterday as visible from the 800 point drop in the Dow Jones Industrial Average index. While US Dollar continues to retain some of its safe haven attraction and is bid continuously whenever there has been a risk averse market sentiment, the long term outlook for US Greenback is beginning to turn dovish. This is also one of the major factors that helped limit the common currency’s downward slide despite broad based demand for US Greenback.

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On the release front, European market is scheduled to see German Service PMI, Markit Composite, Retail Sales & Services PMI data of Euro Zone and a speech from ECB President Draghi while US markets see release of Markit Composite PMI, Unit Labor Costs and Services PMI data. When looking from technical perspective, traders seem to be waiting for a convincing break through strong support, currently near the 1.1295 region, before initiating aggressive bearish positions. On a sustained weakness below the mentioned support, the pair is likely to accelerate the fall back towards challenging yearly lows, around the 1.1215 region. On the flip side, the 1.1350-55 regions now seems to act as an immediate resistance, above which the pair is likely to aim towards reclaiming the 1.1400 handle. Any subsequent up-move seems more likely to remain capped at the bearish pattern resistance, which if cleared might negate the near-term bearish outlook and prompt some aggressive short-covering bounce towards reclaiming the key 1.1500 psychological mark.

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