EUR/USD Daily Forecast – Euro Little Changed on the Week Despite Recovery in Risk Appetite

EUR/USD declined below notable support yesterday but follow-through has been lacking as volatility has slowed over the past few weeks for the pair.

The pair lost upward momentum last week after testing its 200-week moving average which had also held the exchange rate lower in March. In addition to the test of resistance, EUR/USD had shown signs of being overbought.

Unemployment claims in the US declined slightly to 1.51 million from a revised 1.56 claims in the prior week. The figure was above the analyst estimate of 1.3 million although the report did not accompany much of a reaction in the markets.

The Bank of England kept rates on hold yesterday which was largely expected. However, they increased their asset purchase program by a smaller figure then the markets had expected and were optimistic towards an economic recovery.

Earlier in the week, the Swiss National Bank also left rates on hold but communicated that they may remain active in the currency markets.

The European Central Bank announced that it will be reducing the frequency of its dollar swaps at the start of next month as funding conditions have improved. This could relieve some of the pressure on the dollar seen over the last month or so.

The European Council is meeting today to discuss its recovery fund as well as its long term budget.

Technical Analysis

EUR/USD has been edging lower since Tuesday and has fallen below support near 1.1220. However, downward momentum has been lacking so far.

The next level of downside interest falls at 1.1144 if bears continue to hold the pair below 1.1220.

The pair shows a mixed outlook. On the one hand, it has failed to gain on the back of a recovery in the equity markets. The relationship between stocks and the currency pair had been strong up until about a week ago.

At the same time, the general lack of downside momentum makes it difficult to build a bearish case.

Resistance for the pair is seen at 1.1284 and a range appears likely in the session ahead considering the light economic calendar.

Bottom Line

• EUR/USD is on pace to close the week for a small loss.
• The near-term trend is to the downside, although momentum is lacking. Sellers may look to sell rallies and a further decline towards 1.1144 continues remain plausible.

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