EUR/USD Daily Forecast – Euro Eases Lower As the Dollar Recovers

The euro gained broadly in the second half of last week which caused a brief spike to a fresh one-month high for EUR/USD. Sellers stepped in after a rally above the 1.1000 handle on Friday but the pair still managed to close the week out strong, erasing losses from the prior two weeks in the process.

Gains in the dollar in the early week are attributed to risk aversion as the equity markets are under pressure after US President Trump threatened to revive the trade war with China. Trump intends to “punish” China for its role in the spread of the Coronavirus by once again implementing trade tariffs. The equity markets, which had otherwise shown optimism with several countries easing lockdown measures, has come under a bit of pressure in response.

Manufacturing output in the euro area fell at the sharpest pace since the IHS Markit started reporting it 23 years ago. The PMI index came in at 33.4 for April which was roughly in line with analyst expectations. All of the countries in the euro area showed record declines in output with Italy showing the biggest drop.

There aren’t any notable economic releases for the remainder of the day which suggests it might be a slow start to the week.

Technical Analysis

EUR/USD briefly scaled above the mid-April high on Friday, likely triggering stops from weak hands. The upside momentum has subsided notably since then and range like conditions appear probable.

Seller may look to sell rallies on an approach to resistance at 1.0989 while strong support for the pair is seen at 1.0894.

Currency traders will keep a close eye on the equity markets as a further decline in risk sentiment stands to underpin the dollar, at least over the near-term.

At the same time, the fall in the dollar last week was abrupt and the downward momentum was strong, especially during the second half of the week. This stands to limit the upside potential for the greenback.

Bottom Line

• EUR/USD is easing lower to start the new week as the recent bullish momentum has subsided.
• Considering the light economic calendar for a session ahead, the pair may fall into a range in the absence of further news regarding China trade tariffs.