EUR/USD Daily Forecast – Euro Attempts to Recover as Risk Assets Bounce

The US Dollar dominated the currency markets on Thursday as a cautious outlook from the Fed and concerns of a second wave of Coronavirus cases in some American States caused investors to flee to the greenback for its safe-haven status.

The S&P 500 (SPY) closed 5.76% lower yesterday to wipe out gains for the month thus far as all but one stock in the index declined.

Buyers have stepped in, however, and US index futures are bouncing in early trading today, leading the dollar to pare some of its recent gains which has underpinned EUR/USD.

Nevertheless, the momentum in the equity decline yesterday, and the general lack of a bid in stocks suggests that a near-term high might be in for the equity markets which could lead to more downside for EUR/USD.

Earlier today, the French consumer price index was reported to rise 0.1% in May, which was a tick higher than analysts had expected. The unemployment rate in Italy improved to 8.9% in the first quarter, marking the lowest reading in eight years.

Technical Analysis

EUR/USD showed signs of being oversold ahead of the shift to risk aversion yesterday which raises the odds of a turn lower.

However, the pair has shown extremely strong momentum in the rally that began in the middle of May which suggests that buyers may step in on near-term dips.

Upside resistance for the pair in the session ahead remains at 1.1399 as the level held EUR/USD lower on a daily close basis in March.

The first level of support for the pair is seen at 1.1287. This same level held the pair higher late last week and in the week thus far, on a daily close basis.

How the pair ends the week will be important as the 200-week moving average is in play. The indicator currently falls at 1.1332.

A weekly close below it stands to build towards a bearish near-term case and may entice bears to try a short position next week, especially if the equity markets fail to recover.

Bottom Line

• A combination of a grim outlook from the Fed and rising Coronavirus cases in the US has caused a shift to risk aversion this week.
• EUR/USD has lost its upward momentum. The pair looks set to close below its 200-week moving average which could trigger a pullback next week.

For a look at all of today’s economic events, check out our economic calendar.