The EUR/USD is higher today but remains weighed down by bearish sentiment, which has limited the upside. This comes as Nordea Bank is predicting a slide to 1.15 – 1.17, as long as the current fundamentals are left intact.
Economists at Nordea argue that interest rates are disproportionately low relative to the economic outlook. This view is highly disputed by several ECB board members, with calls for the ECB not to be forced into “unwarranted tightening” by a board member a few weeks ago. This sets the stage for further bearishness on the pair, targeting 1.15 – 1.17, according to the bank.
Nordea believes interest rates in the US will shoot above the 2% target for the 10yr-bond yield later this year. In my opinion, this puts the US Dollar up for additional strengthening against the Euro, which remains bogged down by vaccination troubles and the ECB’s trajectory of not jumping the gun in terms of rate adjustments to the upside. As an ECB member put it, an increase in vaccine coverage does not necessarily mean economic growth. This suggests that rates in the EU will stay low for much longer. It also suggests that the ECB prefers to add more stimulus and not taper it, even when things start to look up.
Nordea feels that only implementation of yield curve control could “reverse their view” on the EUR/USD. So far, the Fed sees the growth in bond yields as a sign of economic recovery which should be allowed to continue.
Technical Outlook for EUR/USD
Selling momentum on the pair died off early in the London session, allowing the pair to pull back to the 1.18008 prior support. This level resisted further upside and now constitutes a resistance barrier.
Sellers would be looking for more momentum from the rejection at 1.18008, to enable a drop towards 1.17313 (21 September and 28 October 2020 lows). 1.16028 is an additional target to the south.
On the other hand, bulls need to overcome 1.18008 and 1.18395 to allow for more extensive recovery, which brings 1.18927 and 1.19472 into the picture as potential targets to the north. 1.19999 is the barrier located just above the previous double tops. 1.20549 is the upside target that comes into play if 1.19999 is taken out.
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EUR/USD Daily Chart
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