EUR/USD Forecast: Buying opportunity? Three reasons why the Italy-inspired correction may end soon
|- Italy is considering closing schools and that is weighing on the euro.
- US data is unimpressive and may weigh on the dollar.
- Biden's Super Tuesday victory may be soon forgotten by markets.
Working from home is a feasible solution for most people in developed countries– but it can become impossible if the children are at home. Italy – one of the hardest-hit countries by the coronavirus outbreak – is considering closing schools and universities until mid-March. Office workers who telecommute will find it hard to so if they have small children. The mere news that Italy is considering it is already weighing on the common currency.
EUR/USD is also pressured as markets are cheering the victory of Joe Biden in the US Democratic Party's "Super Tuesday" primaries. The centrist and former Vice President Joe Biden has come on top in a contest that includes a third of the electorate. Markets fear left-leaning Senator Bernie Sanders who previously led the pack. Investors are rotating to stocks while abandoning bonds. The rise of US ten-year yields above 1% is underpinning the dollar.
However, here are three reasons why this trend may reverse:
1) Coronavirus is everywhere
Italy – whose economy had been struggling before the crisis – is not alone in rising numbers of coronavirus cases. The death toll in the US continues rising and the world's largest economy has more to lose from measures of social distancing.
The Federal Reserve slashed interest rates by a double-dose of 50 basis points on Tuesday and is expected to cut rates again later this month. The move comes in response to the virus. While reducing borrowing costs may not be the right tool, the Fed is reacting to justified fears.
2) Unimpressive US data
ADP's jobs report or February was only OK with an increase of 183,000 jobs – but on top of a significant downward revision to January's data, from 291,000 to 209,000.
The forward-looking ISM Non-Manufacturing Purchasing Managers' Index carries high expectations for ongoing growth. However, the services sector bosses may express fear from the impact of coronavirus on the economy.
See ISM Non-Manufacturing PMI Preview: The Fed, US Treasuries, and the dollar
3) Biden's win is a double-edged sword, and not so critical
While markets prefer Biden over Sanders, political analysts see President Donald Trump's chances are higher against Sanders. As markets prefer the incumbent, the result is not necessarily a positive for investors.
See Biden dominates Super Tuesday returns but nomination remains elusive
Moreover, and as mentioned earlier, virus headlines are omnipresent and may return to drown other topics.
Out of overbought conditions
The Relative Strength Index on the four-hour chart has dropped below 70 – thus putting EUR/USD outside overbought conditions. This opens the door to further gains.
The currency pair is also recording higher high and higher lows and it is above the 50, 100, and 200 Simple Moving Averages.
Resistance lines include 1.1120, 1.1145, 1.1180 and 1.1215.
Support levels are 1.11, 1.1055, 1.1010, 1.0980, and more.
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