EUR/USD Daily Forecast – Downside Momentum Subsides Following Fresh ECB Stimulus Measures

The ECB has stepped up its efforts to counteract the negative economic impact of the Coronavirus by launching a new asset purchase program.

The program is to take place at least until the end of the year or longer if the concerns surrounding the virus persist. The 750 billion euros allocated to this program will be used to purchase public and private sector securities that are eligible based on guidelines created for prior asset purchase programs.

The ECB added that it is ready to do what is necessary, within its mandate, and can increase measures further if needed.

EUR/USD has been under pressure as investor flock to the dollar which is considered to be a safe haven during uncertain times. The pair is down over 5% from the high posted last Monday.

But despite the sharp decline in the pair, the single currency has fared well while the dollar has dominated. The British pound, on the other hand, has fallen to lows not seen in 35 years. The three major commodity currencies are also under a significant amount of bearish pressure with the Australian dollar declining to levels not seen in 17 years earlier today.

Technical Analysis

EUR/USD is trading near support at 1.0833 which served to trigger a turn in the middle of February on a weekly chart.

The pair appears to be consolidating, and there is some potential for a recovery.

At the same time, it is important to recognize that there is demand for the greenback at this time as panicked investors liquidate from the markets and try to move to a cash position. We may need to see this panic subside before the dollar pulls back.

In the event of a bearish break lower, the next level of support for the currency pair falls at 1.0729. To the upside, resistance is seen at the psychological 1.1000 handle.

The US Dollar index (DXY) has rallied above major resistance and trades at level not seen in three years. The next major resistance level is now seen at 103.00 which held the index lower in 2016.

Traders should be cautious during this time. While the markets often mean revert after extreme moves, the dollar can just as easily break out from here, especially if DXY crosses over the 103 handle.

Bottom Line

• Volatility in the overal markets remains escalated on the back of Coronavirus concerns. The dollar is dominating the FX markets.
• The US dollar index is approaching major resistance. The potential for a bullish breakout if the index gets above 103 cannot be ignored.