- Summary:
- Due to a rebound in the bond yields and the DXY index, EUR/USD is facing a major pullback. A retest of the 1.08 level is still possible.
EUR/USD pair surged to its new monthly high on Tuesday. However, the price action reversed at the end of the Asian session as DXY surged from its fresh monthly lows. At press time, EUR/USD is down 0.48% as the dollar continues to gain strength.
The US economy remains resilient as the recent positive PMI data has beaten investors’ expectations. In addition, the 10-year bond yield turned green once again after a pullback in the last two days. Currently, the yield is standing at 4.87%, which is 0.45% higher than its Monday close. The DXY index is also showing a similar rebound and is up 0.48% on Tuesday.
Euro Plummets Amid Weak Economic Data
Earlier on Tuesday, the release of the weak eurozone manufacturing and services PMI data put pressure on the euro. The manufacturing and service PMI were 43 and 47.8, both worse than expected. This shows that business activity has declined significantly as the risk of recession looms over European markets.
Investors are on their toes as the Federal Reserve is set to decide on its rates policy in next week’s FOMC meeting. The CME FedWatch tool shows a 97.3% probability for the FED to keep the rates between 5.25%-5.5%. Only a small fraction of 2.7% expects the rates to decrease to 5%-5.25%.
EUR/USD Pair Forecast
The chart below shows the EURUSD pair surging 2% after finding support at the $1.048 level. I mentioned this level in my previous technical analysis of the forex pair. In the coming days, if the bond yields cool off, the bulls can safely expect a retest of $1.08 resistance, which lies close to the 200 MA level. This level is also in confluence with the bottom of the ascending channel.
However, the bears can still regain control of the pair in case of a pullback in the DXY index. A breakdown below the 1.048 support would make the EUR/USD pair forecast bearish for me. The pair is expected to remain volatile in the coming days due to the FOMC statement which is due next week.
