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EURUSD Analysis: Euro Rebounds from The Major Support

By:
Aziz Kenjaev
Published: Apr 5, 2021, 08:56 UTC

Euro gains against the US Dollar for the second day in a row after a massive loss caused by the third wave of Covid-19 infections. The US Dollar Index is down 0.20% after President Biden’s proposition of injecting another $2 trillion into the US economy.

EUR/USD

In this article:

The week’s US economic data was mainly positive, showing the signs of the economic recovery boosted by the $1.9 trillion stimulus pack. The US Consumer confidence hits its highest level since the Covid hit in March 2020, while Manufacturing PMIs and manufacturing employment in March also surged.

Initial jobless claims reported on April 1st told us that the Labor part of the economic recovery is still behind and needs attention, Initial jobless claims reported were at 719K, which is 61K higher from the previously reported 658K. Nevertheless, anxiety of investors over the inflation hike backed by the sharp economic growth remains. The inflation hike could force the FED to review the current policy and increase the interest rate ahead of time.

Germany, the EU’s largest economy, reported the highest unemployment change in February, whereas the unemployment in March remained at 6%. European Manufacturing PMI as well as the Manufacturing PMI in all four largest economies of the Commonwealth continued to grow, some outshining the expectations. The positive note of the week for the Euro is blanked out not only by the rising Covid-19 cases and further lockdowns but by the quote from the President of the ECB Christine Lagarde, who during her interview for Bloomberg said that the “economic situation in Europe is covered by uncertainty”.

What does the chart say?

The Euro against the US Dollar reached an important support and was able to stay above that level. As seen on the chart daily, EUR/USD chart below, the pair is currently testing the lower edge of the ascending parallel channel and the dynamic support of January 15.

EUR/USD quote on Overbit

RSI indicator shows that Euro is oversold and should retrace from here. Based on the price action principle, and following the levels of the RSI indicators, I believe that Euro will reach $1.18455 if it remains above the support and above $1.1700.

EUR/USD quote on Overbit

The $1.1800 bears a very strong resistance power. The chart above has some indications of the importance of RSI’s resistance at 50, after each test of the bottom line of the RSI price moves upwards to test this resistance and the distance of each upwards move from the bottom of RSI until the 50 on the price chart is roundly the same.

On the lower time-frame, i.e. an hourly EUR/USD chart, both MACD and RSI indicators are signalling the short-term bullish continuation of the pair. Whilst the chart pattern analysis suggests that Euro is about to hike towards $1.1990 and $1.21300, closing above the $1.1800 is extremely important, otherwise it would be a retest of the support as resistance and Euro will resume the downtrend.

EUR/USD quote on Overbit

The pair is following the ending diagonal pattern on an hourly, which in general suggests the local trend reversal. According to the five-wave structure of this pattern, it is assumed that the Euro should have one more leg down before it can breakout from the dynamic resistance. However, if Euro keeps the bullish pace of March 31, we could witness a breakout and an advancement towards $1.18455 and $1.19930 anytime soon.

As the Covid-19 cases rise in the EU, with France leading the daily Covid cases by country in the World, the ECB will most likely keep the monetary policy and the inflation hike is not expected in the EU until Q3 2021, Euro could have an edge over the USD as investors’ fear over the inflation hike in the US rises every time US economic data is positive.

This week will host announcements of important data on Job openings from the US as well as Non-manufacturing PMIs. Keep track on German manufacturing orders and Services PMIs of Europe’s four largest economies and the EU as a whole, and German factory orders.

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

About the Author

Aziz Kenjaevcontributor

Technical analyst, crypto-enthusiast, ex-VP at TradingView, medium and long-term trader, trades and analyses FX, Crypto and Commodities markets.

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