EUR/USD Daily Forecast – Euro Retreats as Equity Market Rally Loses Steam

The US dollar has had a stronger than usual inverse correlation with the stock markets as of late. When investors pull out of the equity markets, the dollar has seen a firm bid. Thus far, the opposite has held true as well.

The S&P 500 pulled back after briefly scaling above its 200-week moving average in the early week, an indicator that is considered to be quite important for the US index. Where the index closes at the end of the week in relation to it could set the tone for the dollar over the near-term.

The US dollar index (DXY) pulled back yesterday to briefly fall below the 100.00 level but has since recovered back above it. Yesterday’s decline wiped out more than two days worth of gains for the greenback.

The economic calendar for the day ahead is relatively light for the EUR/USD pair. The Federal Reserve will release minutes from their last FOMC meeting during the North American Session.

European Union finance ministers are discussing a potential half a trillion euros package that aims to help the European economy stave off the economic effects of the Coronavirus. Talks were reported to have taken place all night and are expected to continue on Thursday.

Technical Analysis

The price action from yesterday for both EUR/USD and the inversely correlated dollar index (DXY) suggest that a reversal may be taken place. However, where the stock markets go from here will tend to have a big influence on the greenback.

If EUR/USD manages to scale above resistance at 1.0926 the current recovery could extend higher toward 1.1000 resistance.

On the other hand, bears will want to see the pair drop back towards 1.0800 to offset the bullish implications of yesterday’s candle.

A break below 100.00 in the US dollar index can signal a bullish continuation for EUR/USD. If the dollar regains upward momentum, resistance for DXY in the session ahead is seen at 100.80.

Bottom Line

• The inverse correlation between the equity markets and the dollar remains strong. The next move in EUR/USD is likely to be dependent on risk sentiment.
• The Fed will release minutes from their last meeting later in the day.