EUR/USD: Oversold conditions could send it up

April 2, 2019 Off By admin-445
  • EUR/USD is struggling close to the 21-month lows. 
  • Upbeat US data, weak EZ data, and also Brexit weigh on the pair.
  • The pair is entering oversold conditions on the four-hour chart, and this could limit the falls.

EUR/USD is battling 1.1200, not too far from the 21-month low of 1.1176 set in March. There are three main downward drivers which are quite straightforward.

1) Weak euro-zone data

Euro-zone Purchasing Managers’ Indices for the manufacturing sector mostly confirmed the weak preliminary readings and the composite number was even downgraded to 47.5 points, significantly below the 50-point threshold that separates expansion from contraction.

Inflation in the old continent also dropped: 1.4% on the headline and only 0.8% on the core, allowing the European Central Bank to hold lower  for longer.

2) Upbeat US data

US Retail Sales disappointed with drops in February but came on top of substantial upwards revisions for January.

Perhaps more importantly, the forward-looking ISM Manufacturing PMI beat projections with 55.3 points, a healthy growth rate.

Today’s focus is the Durable Goods Orders report, which could be weaker. See  

3) No breakthrough on Brexit

The UK Parliament rejected all four options for a softer  in the non-binding indicative, votes. So far, the House of Commons said No to every potential path forward. Fears of a hard Brexit have increased, ten days to go until Brexit Day, April 12th.

PM Theresa May is convening her cabinet for a long session to decide on the next steps. Her Conservative Party is torn between pro-Remain and pro-Brexit members, and there is no easy way out.

These three topics will likely dominate the scene today as well. Does that mean an extension of he downtrend? It is never easy with EUR/USD.

EUR/USD Technical Analysis

EUR/USD is trading below a downtrend resistance channel that limits any gains, but it is choppy. The 50 Simple Moving Average is falling quickly lower after crossing the 200 SMA, another bearish. However, the Relative Strength Index (RSI) is flirting with 30. A drop below this line represents oversold conditions that may limit any slide.

Immediate support is at the fresh low of 1.1190. It is closely followed by the 21-month trough of 1.1176. 1.1176 already dates back to 2017, and so does the next downside target: 1.1025.

Immediate resistance is at 1.1210 which provided some support last week. 1.1250 held  down in recent days and 1.1285 capped a recovery attempt last week. 1.1330 is next.