EUR/USD depressed alongside yields, more falls to come?
- EUR/USD is trading around 1.1250, consolidating around the lowest levels in two weeks amid a worsening mood.
- German inflation and US GDP data stand out, as markets watch bond markets.
- The technical picture is bearish for the pair.
EUR/USD is going nowhere fast, with the most recent rise above 1.1250 seeming like yet another “dead cat bounce.” Global stocks are lower, and so are bond yields. Fears of a recession continue engulfing the mood as traders flock to the safety of bonds.
The 10-year US Treasury bond yield is around 2.35%, below the Funds Rate. When short-term borrowing is more expensive than long-term borrowing, it is a sign of an upcoming recession. Things are no different in Germany. Europe’s powerhouse sold new 10-year bonds in markets on Wednesday, and the yield was negative. Investors are paying to lend money to the German government.
The European Central Bank already pledged to keep rates lower for longer citing downside risks. President repeated this stance on Wednesday. Chief Economist Peter Praet suggested a tiered system for the central bank’s negative deposit rate. The potential move will ease pressure on banks, but the currency reaction is unclear at this stage.
German states publish their preliminary inflation readings for March during the European morning. The all-German figure will be announced at 13:00 GMT.
Earlier, at 12:30 GMT, the US releases its final read for Q4 2018 GDP. A small downgrade is expected. The world’s largest economy outperformed the rest of the developed world back then.
In the UK, Parliament was unable to coalesce around any alternative Brexit option in non-binding votes on Wednesday. UK PM Theresa May offered her resignation after her Brexit accord passes. While several pro-Brexit MPs have now shifted to supporting the agreement, several hardliners remain opposed, and the DUP maintains its opposition as well. It is also unclear if the government could bring the motion back to Parliament.
At the moment, the pound sticks to its range, and the euro is unaffected. Brexit may impact the euro in case of substantial development.
EUR/USD Technical Analysis – Bearish
EUR/USD is unable to stage a meaningful recovery, and the recent rise can be described as a dead-cat bounce. The Relative Strength Index is lower but not indicating oversold conditions, holding above 30. Momentum is to the downside and the pair trades below the 50 and 200 Simple Moving Averages.
Support awaits at the recent trough of 1.1243, the lowest in two weeks. Further down, 1.1220 was a stepping stone on the way up, and 1.1200 capped the pair just after it hit 1.1176, the current 2019 low. 1.1115 is next.
1.1275 was a swing low last week, and it is closely followed by 1.1290 that held it down on Wednesday. 1.1317 where the 200 SMA meets the price. 1.1335 was a high point late last week. Further up, 1.1360 and 1.1390 capped EUR/USD recently.