The EUR/USD could yet take a greater hit if the outlook provided by analysts at Capital Economics is anything to go by. Capital Economics believes that the present rebound in the pair is short-lived, and would give way to a further decline later in the year.
The backbone of this outlook stems from the lopsided vaccination coverage between the US and the Eurozone, with the US expected to see higher bond yields arising from greater recovery, reduced coronavirus caseloads and an earlier lifting of restrictions.
Furthermore, the ECB does not seem as accommodating to higher bond yields than the US. This policy divergence could put a gap between the currencies in question, according to the analysts at Capital Economics. The situation, they say, implies further downside for the EUR/USD.
Technical Outlook for EUR/USD
The daily chart appears to be showing the corrective a-b-c Elliot wave sequence, following the 1-2-3-4-5 motive wave that lasted from the start of 2021 until the end of March 2021. Price seems to be in the “a” wave correction sequence, which allows for price to target 1.19472 or 1.19999 before undergoing a corrective decline to form the “b” wave. A “c” wave should follow, which may push towards 1.19999 or 1.20549 before the downtrend resumes to align with the outlook provided by Capital Economics.
Resumption of the downtrend targets a support level at 1.18395, with 1.18008, 1.17866 and 1.17313 appearing in the picture as additional targets to the south. Attainment of these levels may come as part of the downtrend resumption following the completion of the Elliot wave pattern or could follow directly from a breakdown of 1.18927 if the bulls run out of momentum to complete the a-b-c corrective wave sequence.
EUR/USD Daily Chart
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