EUR/USD Daily Forecast – Euro Remains Well Bought on Dips

EUR/USD initially fell lower on Thursday but has recovered a bulk of the loss and is seen trading near highs not seen since March.

The single currency is he strongest performer among the majors in the week thus far and has gained about 1% versus the greenback.

New virus cases in the US continue to rise at a rapid clip although the markets do not appear too concerned, and remain optimistic that further progress will be made towards finding a cure.

The S&P 500 briefly touched highs not seen since February earlier in the week but has since fallen into a sideways range. Swings in the equity markets are important to EUR/USD traders considering the two assets have had a strong correlation as of late.

Propping up the European equity markets is the expectation that the European Union will finalize the details of the recovery fund over the weekend. The fund is worth 750 billion euros and aims to assist the economy to return back where it was before the virus hit.

The latest inflation report from Europe showed a rise to 0.3% in the annual inflation rate, up from 0.1% but down from 1.3% a year earlier.

Technical Analysis

EUR/USD is seen trading in the 1.1410-1.1420 area which it has struggled to close above on a daily basis. Considering the upward momentum, the pair looks like it will make a run at the March high of 1.1495.

The currency pair had been consolidating in a range since early June, but the upward momentum this week is hinting of a bullish breakout. Where the pair closes this week will be important. A weekly close above 1.1400 is likely to keep the pair well bid on dips next week.

On the other side, it might take a move below 1.1330 to reverse the near-term upward momentum.

The US Dollar index (DXY) is lingering near lows not seen since June 10. Often in such scenarios, bears will drive the price lower to trigger stops below the prior low which for the index falls at 95.71.

Bottom Line

• EUR/USD is maintaining its upward momentum and is set to post the strongest performance among the majors this week.
• Hopes that EU leaders will reach an agreement over the details of the recovery fund this weekend should keep equity markets propped up, and in turn, EUR/USD well bid.

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