EUR/USD Daily Forecast – Euro Rallies to 4-Month Highs as Equities Rebound

EUR/USD is following the equity markets higher after news that US company Moderna is advancing in its efforts to reach a vaccine for COVID-19. The dollar has declined broadly against its major counterparts in early trading on Wednesday as a result with the trade-weighted index (DXY) trading at lows not seen since early June.

Moderna’s stock price closed about 20% higher on the week on Tuesday and is set to advance another 15% at today’s open. The S&P 500 (SPY) gained 1.3% yesterday and has rallied about half a percent in pre-market trading.

EUR/USD has had a strong correlation with risk sentiment and if the momentum in the equity markets remains, it could turn out to be a bullish breakout for the currency pair which has otherwise traded in a range since early June.

One thing euro bulls should keep in mind, however, is that the ECB decision takes place tomorrow, and it stands to have a material impact on the exchange rate.

The session ahead is relatively light in terms of economic data. Fed member Harker is scheduled to speak early in the North American session.

Earlier in the week, the Fed warned that the economic damage stemming from the Coronavirus could be greater than previously expected, reacting to the rise in cases in the US.

Technical Analysis

EUR/USD crossed over a notable hurdle at 1.1340 on Tuesday and has extended on the bullish momentum to take out major resistance at 1.1400.

The pair last traded at these levels in March, when volatility was heightened as Coronavirus concerns triggered a sharp drop in the equity markets.

The next level of upside interest for the pair falls at 1.1495 which marks the March high. Immediate downside support for the exchange rate is now seen at 1.1400.

Tomorrow’s ECB meeting may limit upside gains today although if the US equity markets continue to show strength during the North American session, dips are likely to be shallow.

Bottom Line

• Vaccine hopes have boosted the equity markets and have caused the dollar to extend lower.
• EUR/USD shows signs of breaking out of a six-week range although confirmation will be had if the pair sustains the momentum following Thursday’s ECB decision.

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