EUR/USD Daily Forecast – Euro Regains 1.1300 As Risk Appetite Improves

EUR/USD continues to carry a strong relationship with the equity markets as the same drivers that are boosting stocks, have been weighing on the dollar.

The dollar started the week out on a strong note, continuing on the momentum from late last week, although pared some gains in Monday’s trading session.

Rising Coronavirus cases in Beijing and some US States had spooked markets at the start of the week but this was offset by stimulus efforts from the Federal Reserve and hopes of more fiscal easing from the government.

The Federal Reserve has started buying bonds of individual companies, stepping outside of its normal methods of buying ETF’s that contain a basked of companies.

Market participants were encouraged by this, and talks of a new fiscal package that is being discussed in the US. The details on the package are not clear at this point as it is still in the early stages. Further, there will likely be some push back from both Republicans and Democrats considering the expected size of the package and the involvement of payroll tax cuts.

EUR/USD began its upward momentum in the second half of May after intentions of further easing were revealed. EU leaders are expected to meet on Friday to discuss the commission’s 750 billion euro recovery fund.

Technical Analysis

EUR/USD found buyers near 1.1250 and has shown renewed upward momentum.

At the same time, the pair entered into overbought territory last week with notable resistance in play.

Resistance stems from a horizontal level at 1.1400 which served to hold the pair lower in March, on a daily close basis. Further, the 200-week moving average falls near the level to create a confluence.

The pair shows underlying strength as dips have been shallow as of late. Also, the pair was little impacted by the risk aversion that took place in early European trading yesterday which also points to bullish demand.

Considering the overbought conditions, and the resistance overhead, the development of a range seems like a strong possibility as buyers continue to defend dips.

Bottom Line

• Fed easing and expectations of fiscal stimulus in the US helped investors brush off reports of rising Coronavirus cases in some parts of the world, leading to a recovery in risk appetite.
• EUR/USD is overbought and faces major technical resistance. A failure to break above 1.1400 could lead to a range in the pair.

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