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EUR/USD Daily Forecast – Euro Holds Pat While Equities Tumble

By:
Jignesh Davda
Published: Jun 15, 2020, 09:52 UTC

EUR/USD declined last week on the back of a shift to risk aversion but is seen relatively unchanged despite continued bearish pressure in equities.

EUR/USD

One of the main drivers in the markets as of late has been risk sentiment. The willingness to buy risky assets among investors, such as stocks, drove the us dollar down sharply until last week.

The trade-weighted dollar index (DXY) turned higher last week to end a three consecutive week decline after the Federal Reserve delivered a grim economic outlook and as Coronavirus fears resurfaced.

The Fed said that it sees the unemployment rate at 9.3% this year and expects the economy to contract by 6.5% before bouncing back in 2021.

Reports that some US States may be forced to go back into lockdown further weighed on risk sentiment. This was exacerbated by news of a new Coronavirus outbreak in Beijing where lockdown measures were reimposed.

The S&P 500 (SPY) declined 5% last week to wipe out losses from the week prior. In early trading on Monday, the futures market shows the US index shedding another 2%.

But despite the fall in equities to start the new week, EUR/USD has held in a tight range and trades virtually unchanged. Further price action will reveal if the dollar decoupling is signaling whether risk aversion will abate, or if it’s just a temporary divergence.

Technical Analysis

EURUSD 4-Hour Chart

The turn lower last week followed a retest of the 200-week moving average, which served to hold the pair lower in March.

EUR/USD has broken lower from a rising trendline that originates from lows posted in late May.

In addition to the downside break, and notable overhead resistance, the pair was quite overbought going into last week.

But it might too early to call a top in place as the upward momentum in the month thus far has been strong. Further, the lack of downside movement today while equities continue to tumble should be a concern for bears.

In the session ahead, 1.1288 as seen as strong overhead resistance as the level acted as support last week. While below it, a potential downside target might be seen at 1.1164.

A rally back above 1.1288 could lead to range-bound trading to work off earlier overbought conditions.

Bottom Line

  • Risk aversion remains persistent in the markets with the S&P 500 set to extend 2% lower at the US open today.
  • The dollar snapped a three-week bearish streak but has struggled to gain on early day weakness in the equity markets.

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

About the Author

Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.

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