EUR/USD Daily Forecast – 1.15 Handle Caps Volatile Rally on Weekly Open

EUR/USD has been impacted by a volatile market open, although not at the same degree as other assets.

Oil prices crashed towards lows not seen since 2016 and were down more than 30% in the early day. Some buyers have stepped in, yet the price of the commodity remains 20% lower on the day shortly after the European open.

Bonds yields are falling across the board with the US 10 year yield (US10Y) declining to a low of 0.36% in the early day from Friday’s close of 0.767%. The Euro Stoxx 50 index was last seen down 6.25% on the day. The index is down over 21% from the high posted on February 20th, officially making it a bear market.

EUR/USD rallied sharply at the open but the upside momentum faded slightly ahead of a test of the 1.15 handle. The pair has since given back more than half the gain and has fallen back below the 1.14 level.

The European Central Bank meets later this week and investors will be anxious to see how they respond, especially after the Federal Reserve cut rates by half a percent last week.

However, considering the market volatility at this week’s open, there is a good chance central bankers and government officials will try and provide some comments today in an attempt to settle the markets.

Technical Analysis

EUR/USD has gone from a bearish extreme to a bullish extreme in the span of two weeks. Positioning has been a big factor and the view that the ECB does not have the room to ease policy as much as the Fed does has also had a dominant role.

The pair is notably overbought at this point, but considering the heightened volatility and the events driving the markets, there is little reason to expect a reversal. A catalyst will probably be needed for the pair to turn direction. At this stage, it seems like there is little the ECB can do, but after the Fed’s action, Europe will look to do what it can in terms of softening the economic blow from the Coronavirus.

Resistance at 1.1446 is considered important as it held EUR/USD lower on several attempts between 2015 and 2016 on a weekly chart. While below the level, the pair may fall into a range in the session ahead. A bullish break above it, on the other hand, might suggest an acceleration in upward momentum.

Support for the session ahead is seen at 1.1370. A drop below it targets 1.1300 to close the gap from this week’s open.

Bottom Line

• A volatile open to the markets this week has led to a rally in EUR/USD to highs not seen in a year. The exchange rate pared back some of the early day gains in early European trading.
• Oil prices and the 10-year yield show double-digit losses while the Euro Stoxx index has officially entered a bear market.