EUR/USD Daily Forecast – Euro Little Changed As Equities Plunge

An escalation in Coronavirus fears has led to a plunge in the global equity markets while safe-haven assets such as gold and bonds are firmly bid. The currency market is not reacting all that much to the sudden shift to risk aversion and volatility in FX is certainly subdued in comparison.

The S&P 500 is down just over two and a half percent in the pre-market and has nearly fully wiped out the gain for the month thus far in the decline that began on Thursday. The German DAX has fared worse and is down nearly 4% shortly after the European open. Meanwhile, gold prices have reached seven-year highs.

German ifo business climate index figures somewhat contradicted what the market is signaling today as sentiment among German managers improved slightly in February. The index climbed to 96.1 from 95.9 in the past reading which was ahead of analyst expectations. The report went on to say that the German economy does not seem to be affected by Coronavirus developments.

Technical Analysis

The euro stands to rally if the current shift to risk aversion is here to stay as the single currency is often used as a funding currency. At the moment, the pair appears to be little impacted by recent developments.

EUR/USD displayed unusual downside momentum in the past few weeks but a rally late last week has lifted the tone for the pair. The late-week price action led to a candlestick print on a weekly chart that suggests exhaustion from the prior downtrend.

Further, the pair has broken upward from a declining trend channel that had encompassed it for most of February. Although it should be noted that upward momentum on the break has been lacking.

The 1.08 level is viewed as support in the early week, and while above it, the pair stands to extend on the recovery that began late last week. A drop below it, however, is likely to signal a bearish continuation which could see the pair break to fresh multi-year lows.

Technical Analysis

• Equity markets are selling off aggressively in the early day on a rapid deterioration of risk sentiment.
• EUR/USD volatility is slowed considerably and there are signs of a potential recovery.