EUR/USD Daily Forecast – Upside Potential Rises as Dollar Demand is Expected to Fade

One of the predominant themes in the markets for the last few weeks has been a flight to the US dollar which dragged EUR/USD to lows not seen since 2017 last week.

Last week, investors continued to take money out of risky investments which kept upward pressure in the dollar intact. In a somewhat unusual manner, investors also sold their holdings in gold, which is otherwise known as a safe-haven, to increase their cash holdings.

A shift in the markets, driven by fiscal stimulus efforts, appears to be undoing some of these trends. Gold prices have found a bottom and have advanced notably in the week thus far. Equities around the globe are also rising and the S&P 500 posted a nearly 10% gain yesterday.

Investors are encouraged as the US is closing in on finalizing a $2 trillion stimulus plan which is expected to put money in the hands of those affected by the Coronavirus and curb the overall negative consequences of the virus.

So far the dollar has not seen moves as extreme as those in equities or the precious metals markets. However, the greenback stands to decline if the same panic seen in the markets over the past few weeks continues to subside.

Technical Analysis

EUR/USD has made several attempts to break above 1.0800 resistance. While the pair has not made a clean break, it’s evident that sellers have thrown in the towel in terms of defending the level.

The next hurdle for bulls now comes from a declining trendline which originates from highs posted earlier in the month. A break above it would confirm that a broader recovery is taking place.

In such a scenario, upside targets for the pair are seen at 1.1000 followed by 1.050.

EUR/USD is seen holding above the 1.0800 level in the early day on Wednesday and bulls will not want to see the pair drop back below it.

The main thing to watch for in the session ahead is a strong move to the upside, to provide confirmation of a recovery. Thus far, the pair has not shown much upward momentum since it bottomed at the weekly open.

Bottom Line

• Investors appear less panicked as the US is in the final stages of approving a large fiscal stimulus plan.
• The same drivers for the sharp rise in the dollar over the past few weeks stand to dissipate as investors show a willingness to put money back into other investment assets.