- The shared currency remains subdued in the American session, but remains at the 1.0900 level amid a risk-off mood.
- The contraction in China’s Caixin manufacturing and services PMIs is shaping up to be a sign of a global economic slowdown.
- EUR/USD Price Forecast: A break below 1.0900 would exacerbate a move lower towards 1.0806.
The EUR/USD remains in choppy trade as market players prepare for the release of the March FOMC meeting minutes, but earlier gave way to USD bulls as it broke below 1.0900 during the European session but recovered the latter in the American session. At the time of writing, the EUR/USD is trading at 1.0905, sideways.
Pessimistic market mood and Fed speech boost dollar
Market sentiment is bearish as European equities ended with losses, while across the pond the story is the same. In the Asian session, news that China’s Caixin services for March fell below 50 levels, in the same period as Monday’s manufacturing reading, worries market players. The recent outbreak of Covid-19 in China threatens to slow down the global economic recovery.
Elsewhere, the Fed’s hawkish speech during the week dragged global equities lower while bond yields rose. On Wednesday, Fed Governor Lael Brainard spooked markets by commenting that the balance sheet reduction could start at the May meeting, something unexpected for traders as they expected QT to start at the July meeting. For her part, Kansas City Fed Esther George said that a 50 bp move would be an option we should consider and stressed that conditions favor going faster than before.
Money market futures portray market players’ response to comments from Brainard, one of the FOMC doves. The CME FedWatch tool shows that investors have priced in a 75.5% chance of a 50bp rate hike at the May meeting, which will raise the Fed Funds Rate (FFR) to 1%.
Meanwhile, the US Dollar Index, a gauge of the dollar’s measure against a basket of its rivals, retreats from yearly highs, shedding 0.5% to settle at 99.443. By contrast, US Treasury yields are rising.
10-year yields stand at 2.586%, up one basis point but down from a year-to-date high of 2.66%, as market players await the release of the March Monetary Policy Minutes.
On the geopolitical front, the fight continues in Eastern Europe. Moscow said work is ongoing when the next round of talks with Ukraine takes place.
EUR/USD Price Forecast: Technical Outlook
The EUR/USD downtrend remains intact and is accelerating towards a retest of the yearly low at 1.0806, as shown by the 300 pip drop in the last five trading days. Furthermore, the Relative Strength Index (RSI) at 38.94 below the 50 midline is in bearish territory, with enough room to spare before the RSI reaches oversold conditions if EUR/USD heads lower.
That said, the first support level for the EUR/USD would be 1.0900. A clear break would expose the yearly low at 1.0806, followed by the April 2020 cycle lows at 1.0727 and then the March 2020 Covid-19 pandemic outbreak lows at 1.0636.
Technical levels
Source: Fx Street
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