Will EUR/USD Find Acceptance Under 1.20?

• EUR/USD closed below 1.20 yesterday. 
• No change in rates, but hawkish Fed likely.

The EUR/USD pair closed below 1.20 yesterday - its weakest daily close since January 11 and could extend losses further, according to fundamental and technical studies.

Fed to hike rates three more times this year?

The probability that the Fed would hike rates three more times this year (four rate hikes in 2018) has jumped to 40 percent - almost doubled in the last few weeks. Kathy Lien from BK Asset Management says, " if the Fed is serious about a June hike, they will signal their intention at Wednesday's meeting". In this case, the EUR will likely find acceptance below the 1.20 mark as the rate differential will widen further in the EUR-negative manner.

Note, the bearish bets in 10-year Treasury futures currently stand at record highs, according to United States Commodity Futures Trading Commission data. Clearly, investors are positioned for a more hawkish Fed.

So, if the Fed surprises with a dovish tinge, the sharp unwinding of the treasury futures shorts and the resulting drop in the yields could put a bid under the EUR/USD. The daily relative strength index does show oversold conditions, so the stage is set for a minor corrective rally. The EUR may also catch a bid if the Eurozone Q1 preliminary GDP number betters estimates.

EUR/USD Technical Levels

As of writing, the spot is trading at 1.2005. A move above 1.2014 (200-day moving average) could yield a corrective rally to 1.2061 (descending 5-day moving average) and possibly to 1.2092 (Sept. 8 high). On the other hand, a move below 1.1981 (previous day's low) would open up downside towards 1.1915 (Ja. 9 low) and 1.19 (psychological). The descending (bearish) 5, 10-day moving average indicates corrective rallies will likely be short-lived.