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Jignesh Davda

Wednesday’s Fed meeting soured risk sentiment causing equity markets around the world to pare recent gains which in turn led to a relief rally in the dollar. EUR/USD, however, has managed to hold near recent highs.

The S&P 500 was weighed by yesterday’s message from the Federal Reserve and is set to open sharply lower today after Fed Chair Powell cast some doubts on the strength of the economic recovery.

The Fed expects the economy will shrink 6.5% in 2020 and has estimated the unemployment rate at 9.3%. These figures stand to deteriorate if a second wave were to occur.

Unemployment in the US is expected to improve to 6.5% next year which is still a fair distance from 3.5% reported earlier this year.

Signs of a second wave in the Coronavirus have started to emerge with several states reporting an unusually large number of new cases as of late.

Texas is at the forefront with a record-high 2.5 thousand new cases on Wednesday. Florida and California also show signs of a new wave starting to emerge.

Several major currencies have pared some of their recent gains against the greenback although the Euro has held ground against the dollar in early trading on Thursday.

Technical Analysis

EURUSD Daily Chart

EUR/USD is seen once again making an attempt at the 1.1400 handle although the dollar strength that is dominant in most other currency pairs suggests this level may prove to be a major hurdle for the pair.

In the event the exchange rate does manage to cross it, the March high of 1.1496 comes in to focus.

To the downside, the price point of interest is 1.1287. This level held EUR/USD higher on a daily close basis late last week.

The US Dollar index (DXY) has moved into a sideways consolidation. The focus this week will be whether the pair closes above its 200-week moving average. This indicator currently falls at 96.41 for the index.

For EUR/USD, the same indicator resides at 1.1333.


Bottom Line

  • Risk appetite has been hit after the Fed revealed it was less optimistic about the economic recovery than expected.
  • Some of the dollar pairs have reversed to pare recent gains although EUR/USD is one of the few that has been well-supported on dips.

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

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