EUR/USD Forecast: Increasing downside risks

US Dollar soars amid market concerns, yen outperforms.
Wall Street tumbles, and US and Eurozone bonds rally.
EUR/USD fails again to hold above 1.1000 and falls sharply.

Matías Salord FXStreet

The EUR/USD fell sharply on Tuesday amid risk aversion. The pair failed again to hold above 1.1000 and tumbled to as low as 1.0963. Renewed banking concerns weighed on sentiment and boosted the Greenback. The US Dollar Index (DXY) rose by 0.55% even as US yields sank. The move in Treasuries was more than offset by a rally in German bonds. The German 10-year yield fell 6.5% to 2.34%.

Comments from European Central Bank (ECB) officials continued to point toward more rate hikes. Isabel Schnabel said, "Data dependence means that a 50 basis points rate hikes are not off the table”. Chief Economist Philip Lane commented that macroeconomic figures indicate they should raise rates again. Currently, market participants see a 25 bps rate hike more likely.

Economic data from the US came positively on Tuesday, with housing data surpassing expectations. Numbers reflected resilience in the economy. On Thursday, the US will report Q1 GDP and consumer inflation. In Europe, the German Gfk Consumer Confidence Survey is due on Wednesday. The economic figures could be offset if banking concerns intensify, triggering more demand for safe-haven assets.

EUR/USD short-term technical outlook

The EUR/USD peaked at 1.1066 on Tuesday and then reversed, falling a hundred pips from the top. The reversal put a potential double top on the table, which should be confirmed with a beak under 1.0900. The retreat found support above the 20-day Simple Moving Average (SMA) at 1.0945. The main trend is still up, but the odds of a deeper correction are rising in the short term.

On the 4-hour chart, the pair remains above a crucial short-term uptrend line; if the price drops below the 1.0945 area, an acceleration toward 1.0910 seems likely. Technical indicators are biased to the downside, and EUR/USD is below the 20-SMA. A rebound above 1.1000 would alleviate the negative pressure.

View Live Chart for the EUR/USD

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Author

Matías Salord

FXStreet

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

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