EUR/USD Daily Forecast – US Dollar Bears Sell Into Strength

After posting losses for two consecutive sessions, EUR/USD is catching a strong bid and has erased a bulk of yesterday’s loss shortly after the European open.

The dollar had been recovering broadly against its major counterparts after Friday’s US jobs report came in better than expected. However, considering the sharp decline in the greenback in recent months, traders have viewed the dollar recovery as an opportunity to load up on fresh short positions.

There has been a notable out performance in European economic data versus the US as of late, and this has been one of the driving themes for EUR/USD. The view is that Europe has a better handle on the Coronavirus compared to the US.

But Friday’s jobs data provided a glimpse of strength in the US economy, and recent Coronavirus statistics point to the same.

The most recent data from the CDC shows the number of new daily cases falling back below 50 thousand after a spike higher in cases over the weekend. The trend in new daily cases peaked in late July and the 7-day average has been moving lower since.

If the US can sustain the momentum in the declining new daily cases, and the labor market recovery, the dollar may find support.

Technical Analysis

EUR/USD is likely to remain bid over the short-term, but the improvement in the US suggests that the pair will struggle to regain the type of momentum seen in July.

This could translate into a range for EUR/USD, with notable overhead resistance near 1.1875 while buyers have been supporting the pair on dips towards the 1.1700 level.

Resistance for the session ahead is seen at 1.1800.

In terms of correlations, EUR/USD traders may want to keep an eye out on equities as the currency pair has had a fairly strong correlation with equities since mid-March.

The S&P 500 continues to show strength but tech stocks have been under pressure. Yesterday, the Nasdaq briefly dipped to levels not seen since early August. The tech index has recovered since then, but price action after the US open will reveal if it can sustain the upward move.

Bottom Line

• EUR/USD is supported by a renewal of US dollar weakness.
• Recent stats from the US point to improvement, this may limit the upside potential in EUR/USD from a broader viewpoint.

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