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EUR/USD Daily Forecast – Euro is Teetering on The Edge of a Breakout

By:
Jignesh Davda
Published: May 28, 2020, 10:01 UTC

EUR/USD broke to highs not seen since the start of April, lifted by prospects of further easing in Europe and a weaker dollar.

EUR/USD

EUR/USD pushed sharply higher in early trading on Wednesday to trade at levels not seen since the beginning of April. The pair shows strong potential for further upside although it may be too soon to call it a breakout.

The exchange rate turned sharply higher last week when leaders from France and Germany initially discussed a further stimulus plan to help out the economies hit hardest by Covid-19.

There was some push back from the original proposal as some member states opposed the idea of providing grants as a form of a stimulus.

The European Union discussed a new package yesterday, worth as much as 750 billion euros, that will be distributed in the form of grants and loans. Italy and Spain are expected to be the main beneficiaries of the package, set to receive 81.8 billion euros and 77.3 billion euros respectively.

Approval is still required from all of the member states and ongoing developments stand to move the exchange rate.

Aside from stimulus talks, continued strength in risk assets has weighed on the dollar which has further boosted the EUR/USD pair. The S&P 500 rallied above its 200-day moving average yesterday and closed above the indicator for the first time since early March.

Technical Analysis

EURUSD Daily Chart

EUR/USD broke above resistance at 1.0992 yesterday and managed to close above the level which is an indication of strength.

At the same time, the pair faces a hurdle from the 200-day moving average, an indicator it has not traded above since late March.

For this reason, price action in the session ahead will be important. A bullish break above the moving average should confirm an upside breakout.

Similarly, the US dollar index (DXY) is trading at support near 99.00 which served to hold the pair higher in the middle of April and in early May.

If the pair can continue to press higher from here, the next level of resistance falls at 1.1075 while 1.1182 could be a potential upside target.

Bottom Line

  • EUR/USD is on the verge of a breakout but still faces resistance from the 200 DMA.
  • US GDP figures and weekly unemployment claims data will be released later today which could trigger a volatile reaction in the pair.

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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