EUR/USD Daily Forecast – Euro Holds Within a Rangs as Buyers Defend Support

The US dollar continues to show signs that it is trying to bounce but a technical support level in EUR/USD has held the pair higher on multiple tests this week.

The greenback has had a strong inverse relationship with the stock markets since the Coronavirus escalation. However, it has managed to stave off losses this week despite a recovery higher in equities. In turn, this has suppressed the upward momentum in EUR/USD.

Risk aversion kicked in earlier in the week on concerns over a spike in Coronavirus cases in China and some US states. Yesterday, China ramped up its lockdown restrictions and raised its emergency level in response.

Easing efforts from central banks and governments around the world have offset the impact from the recent brief bout of risk aversion. In this regard, what Europe does next in terms of easing efforts stands to move the markets. The European Council is scheduled to meet tomorrow to discuss it’s 750 billion euros worth of debt and prospects of increasing it to above 1 trillion in 2021.

In the UK today, the Bank of England is scheduled to announce its latest monetary policy decision. Analysts expect the interest rate to remain on hold and an expansion in the asset purchase program of at least 100 billion pounds.

Technical Analysis

Buyers continue to defend 1.1215 support in EUR/USD. The significance of this level is that it served as a turning point for the recovery that took place throughout the fourth quarter of 2019.

The outlook for the pair is mixed. From a near-term perspective, the momentum is to the downside and there is potential for a downside break for a move towards 1.1144 support.

However, the pair has shown strong upward momentum since mid-May which will tend to keep bears cautious.

Similar to EUR/USD, the US dollar index (DXY) is near a technical inflection point. A horizontal level at 97.38 has been holding the index lower and a near-term range has developed.

A break above the resistance level would offer a strong signal that the dollar is entering a broader recovery.

Today’s BoE decision may offer a catalyst for volatility in the dollar, depending on how aggressive the central bank eases policy.

Bottom Line

• EUR/USD continues to be well bid from 1.1215 support.
• The pair shows some weakness as it is unable to rally on the recovery in risk appetite over the last few days.
• The 200-week moving average in EUR/USD blocked the earlier rally which has led to a range over the past two weeks.

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