US yields in a dead cat bounce and is the EURUSD to break 1.2000?

Avgust 14, 2020 12:00

Despite the recent surge in US yields and the correction in the US-Dollar, the Euro has performed strongly against the Greenback – will we soon see 1.2000 in this currency pair?

Source: Economic Events August 14, 2020 - Admiral Markets' Forex Calendar

Over the course of recent days, EURUSD finally took a breath, seeing a drop back to below 1.1800. The main driver was certainly the push higher in US yields, which also resulted in heavier volatility in precious metals, resulting in the sharpest decline in Gold prices since 2013.

But, as already pointed out in our technical piece on Wednesday for Gold, we consider the recent USD strength short-lived since the push higher in US yields is starting to result in rising expectations that the FED will sooner than later cap US yields and try to weaken the US-Dollar. Our expectation of seeing 10-year US yields going for a run to as low as 0% still stands.

With that in mind, we have a clear picture of today's Retail Sales data from the US: a worse than expected print at 12:30 pm GMT could result in US yields returning some of their gains from the past days, thus putting the USD under pressure and leaving room in EURUSD for a substantial weekly close above 1.1800.

Nevertheless, from a trader's perspective, we'd prefer a deeper short-term correction towards 1.1400/30, since this would deliver a trading setup for a more attractive risk-reward ratio, considering our midterm expectation of the EURUSD is a return to above 1.2000.

Technically, the forecast is bullish on the daily time-frame as long as we remain trading above 1.1150/1200:

Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between May 6, 2019, to August 13, 2020). Accessed: August 13, 2020 at 10:00 PM GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the EURUSD fell 10.2%. In 2016, it dropped by 3.2%. In 2017, it rose 13.92%. In 2018, it fell 4.4% and in 2019 it dropped by 2.2%, meaning that after five years, it was down 7.3%.

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