Euro Rate Talking Points
EUR/USD remains under pressure as data prints coming out of the euro-area point to a slowing economy, and the break of the March-low (1.1176) brings the downside targets on the radar as the bearish momentum appears to be gathering pace.
EURUSD Forecast: Relative Strength Index (RSI) Offers Bearish Signal
EUR/USD struggles to hold its ground following the fresh updates to Germany’s IFO Business Confidence survey as the index narrows to 99.2 from a revised 99.7 in March, and fears of a looming recession may continue to produce headwinds for the Euro as the European Central Bank (ECB) sees ‘slower growth momentum extending into the current year.’
In response, the Governing Council may adopt a more dovish tone at the next meeting on June 6 as the central bank struggles to achieve its one and only mandate for price stability, and President Mario Draghi & Co. may show a greater willingness to implement a negative-interest rate policy (NIRP) as ‘the persistence of uncertainties, related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets, is leaving marks on economic sentiment.’
The ongoing shift in U.S. trade policy may force the ECB to adopt a more accommodative stance as U.S. President Donald Trump pledges to ‘reciprocate’ the tariffs imposed by the European Union (EU), and the Governing Council may further insulate the economy over the coming months amid the weakening outlook for global growth. However, the ECB may keep monetary policy on auto-pilot as the Targeted Long-Term Refinancing Operation (TLTRO) is scheduled to launch in September, and the central bank may refrain from adjusting the forward-guidance for monetary policy as President Draghi’s term is set to expire at the end of October.
With that said, it remains to be seen if President Draghi & Co. will endorse a wait-and-see approach ahead of its next quarterly meeting in June as ECB officials insist ‘underlying inflation is expected to increase over the medium term,’ but recent price action brings the downside targets on the radar for EUR/USD as the exchange rate snaps the opening range for 2019. At the same time, recent developments in the Relative Strength Index (RSI) suggest the bearish momentum is gathering pace as the oscillator snaps the bullish formation carried over from March.
EUR/USD Rate Daily Chart
- There appears to be a broader change in EUR/USD behavior as the exchange rate threatens the wedge/triangle formation from earlier this year, with the near-term outlook mired by the failed attempt to test the 1.1340 (38.2% expansion) hurdle.
- At the same time, recent developments in the Relative Strength Index (RSI) offer a bearish signal as the oscillator snaps the upward trend from earlier this year.
- Close below the Fibonacci overlap around 1.1190 (38.2% retracement) to 1.1220 (78.6% retracement) brings the 1.1100 (78.6% expansion) to 1.1140 (78.6% expansion) region on the radar, with the next area of interest coming in around 1.0950 (100% expansion) to 1.0980 (78.6% retracement).
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For more in-depth analysis, check out the 2Q 2019 Forecast for EUR/USD
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— Written by David Song, Currency Analyst
Follow me on Twitter at @DavidJSong.