EUR/USD Daily Forecast – Euro Under Pressure After German Ruling of ECB’s QE Plan

EUR/USD fell just over half a percent shortly following the European open after Germany’s Constitutional Court ruled that the ECB must justify its QE program is proportionate. If it fails to do so, Germany’s central bank Bundesbank will be barred from conducting further QE purchases.

The currency pair had already turned ahead of the decision as the dollar rebounded on Monday on the back of a weak start in the equity markets. EUR/USD was last seen at 1.0835, down 1.3% on the week thus far.

Labor data our of Spain was better than expected although there was still a sizable 283 thousand people that registered as unemployed in April. This follows 302 thousand jobs lost in the prior month. Analyst had expected the report to show half a million people losing their jobs last month.

Survey data from purchasing managers in the services and non-manufacturing industries will be released from the US later today. Analysts are expecting a notable drop in both as a result of the virus outbreak.

Technical Analysis

The US Dollar index (DXY) wiped out two days worth of losses yesterday and is seen extending gains today on the back of the German court ruling. The index has taken out important resistance near 99.50 and was last seen nearing the psychological 100.00 level.

In a similar fashion, EUR/USD has wiped out most of the gains from the second half of last week. The pair has broken below support at 1.0894 and was last seen approaching a horizontal level at 1.0819.

The dollar is seen gaining broadly against its major counterparts while the single currency is the weakest for the day thus far.

We may see the pair bounce from support at 1.0819 going into the North American session. The German court ruling, however, will likely entice sellers on near-term rallies.

A sustained break below 1.0819 exposes support at 1.0778.

Bottom Line

• EUR/USD is under pressure after Germany’s top court gave the ECB three months to show that the size of its bond purchases is proportionate.
• The currency pair has wiped out most of the loss that occurred in the second half of last week.