EUR/USD Daily Forecast – Dollar Eases Back After Testing Major Resistance Level

The US dollar continues to dominate the FX markets but a major resistance level in the US dollar index (DXY) has triggered some selling which has led the greenback to pull back.

The Coronavirus continues to be the main focus point for the markets although risk sentiment appears to be making a return with the S&P 500 trying to retake the 2500 level in pre-market trading today. The US index is up about 5% in the early day while the German DAX is up about the same and has turned to positive territory for the week.

The producer price index in Germany was reported to decline by 0.4% in February, and 0.1% from the prior year, falling short of expectations. Reporting agency Destatis indicated the decline was heavily weighed by a drop in energy prices while a rise in non-durable consumer goods helped offset the downturn.

Technical Analysis

The dollar has seen an unusual amount of volatility over the past few weeks and this is likely to continue. Some analysts are speculating that there will be intervention to stop the dollar’s rise against the major currencies. Such an intervention could trigger a sharp reversal in the greenback.

On the other hand, the US dollar index, which carries a strong inverse correlation with EUR/USD, appears to be at an interesting junction. It is currently pulling back from the 103.00 level which previously triggered a major reversal in 2016.

It will only take a slight push higher from here for DXY to reach highs not seen since 2004. In such a scenario, technical traders will deem the index to be in a breakout which could lead to a prompt move to parity in EUR/USD. Of course, this is in absence of any type of intervention.

So far, in the early day, resistance at 1.0833 has held EUR/USD lower while support at 1.0729 is currently being tested.

A drop below yesterday’s low, roughly around 1.0650 should equate to the mentioned resistance of 103.00 in DXY.

In the event EUR/USD reverses from here and breaks above 1.0833, the next level of interest to the upside falls at 1.1000.

Bottom Line

• The US dollar index is paring gains after testing major resistance.
• There is some potential for a sharp move higher in the dollar if DXY breaks above resistance.
• Investors will be keeping a close eye on headlines for any talks of intervention to try and cap the dollar’s recent gains.