EUR/USD Daily Forecast – US Dollar Index (DXY) on Verge of Breaking to Nearly 3-Year High

Investors are flocking to the US dollar as the Coronavirus scare continues to push investors out of risky assets such as equities and into trusted currencies such as the dollar.

As a result, the greenback has gained against all of its major counterparts in the week thus far except for the Japanese yen which trades on par with the dollar. The commodity currencies have taken the brunt of the blow with all three showing losses above 3% against the dollar in the week thus far.

In it it’s latest efforts to combat the Coronavirus, the United States is pushing for a fiscal stimulus plan worth between $850 billion to $1 trillion to aid individuals and small businesses as well as industries that are hit economically by the virus.

Treasury Secretary Mnuchin said the stimulus efforts could put cash directly in the hands of Americans either via tax cuts or by directly paying citizens. The proposed stimulus plan will need to go to Congress for approval.

Equities initially rallied on the stimulus plan announcement on Tuesday but have come under pressure once again in early trading today with US futures hitting their lower limit.

Technical Analysis

The dollar index is testing resistance that triggered a turn lower in the middle of February. At the same time, it’s important to recognize the flow into the greenback and the drivers in place which could override technical levels.

While the dollar is at resistance, EUR/USD trades near important support. The pair is currently battling the 1.1000 handle which has been an important and well-respected level over the past few months. Granted, the pair is currently trading below it, but it might be too soon to call a sustained break.

A sustained break of 1.1000 targets 1.0926 while a recovery from here could lead to a rally to 1.1078 resistance.

Bottom Line

• The dollar is dominating the majors, triggering a notable drop in EUR/USD since early last week.
• Support at 1.1000 is considered significant, there has not been enough evidence of a sustained break at this stage.