EUR/USD Daily Forecast – Euro Edges Lower But Holds Above Critical Support

It’s been a somewhat volatile weekly open for some markets as equities and precious metals are showing strength. The dollar, however, is little changed against a basket of currencies as of the European open on Monday.

The asset that stands out in the early day is silver as prices are up 4% on the day thus far and have risen 15% month to date.

The $3 trillion Heroes act was passed in the Senate on Friday which is underpinning equities and metals. This stimulus program is in addition to the $3 trillion already spent by Congress to help the economy recover from the Coronavirus. US President Trump has vowed to veto the act although the markets are optimistic that further easing is coming.

Fed Chair Powell gave a speech last week which most analysts deemed to provide a gloomy outlook of the economy. Powell conducted a follow-up interview in which he attempted to sound a bit more optimistic.

The Fed Chair acknowledged that a great deal has been done to offset the negative impacts of the virus and that Congress as well as the Fed were quick to act. At the same time, he questioned if it will be enough, leaving the door open for further easing.

His view is that if easing measures can keep businesses from insolvency for the next 3-6 months, it will buy time for the economy to start recovering. Powell expects that a recovery will take place in the second half of the year but cautioned that it may take a while until it gets back to the same level they once were.

Technical Analysis

A tight range has been playing out in EUR/USD above a critical support area.

Support stems from a rising trendline that originates from a low posted in March. In addition to the trendline, there is a horizontal level at 1.0775 that adds further support. This same level held the pair higher last week.

A break below this support area is likely to trigger an acceleration in downward momentum.

The trade-weighted dollar index (DXY) is in a similar position in that is has shown a bit of bullish momentum as of late but it remains within a range that has been playing out since late March.

DXY would need to rally just under half a percent for a bullish breakout.

Bottom Line

• EUR/USD is sitting on important support and a break lower from here would signal an important technical breakdown.
• Bulls may be quick to step in on any signs of bullish momentum from here as a result of a favorable risk to reward considering the important support area that is in play.