EUR/USD Forecast: Market gloom and overbought conditions set to bring it down after the surprise rise
|- EUR/USD has gained ground amid end-of-month moves and despite a mixed ECB decision.
- Concerns about the global economy and US data are in the spotlight.
- Friday's four-hour chart is showing that the currency pair is on the verge of overbought conditions.
Powered by PELTROs? The European Central Bank latest addition to an alphabet soup of programs – pandemic emergency longer-term refinancing operations (PELTROs). – is encouraging news but the driver of the rally. The euro benefited from end-of-month weakness in the US dollar and is able to cling onto most of its gains.
Returning to the ECB, its tweaks and new lending schemes will provide some help to the struggling European economies, yet markets wanted to hear that the bank is expanding its bond-buying program, Christine Lagarde, President of the European Central Bank, stressed the dire situation and said that output may plunge by 15% in the second quarter and could tumble by a total of 12% in 2020.
The Frankfurt-based institution did leave the door open to increasing the size of its Pandemic Emergency Purchase Program (PEPP), but investors wanted immediate action. The spread between Italian and German bond yields initially expanded before narrowing again. The relative calm helps keep the euro bid.
European countries continue taking baby steps toward reopening the economies as recent virus statistics continue declining, especially in Italy and Spain, the hardest-hit nations.
Nevertheless, the picture is indeed grim. The euro area's Gross Domestic Product figures showed a squeeze of 3.8% in the first quarter – and this is just the beginning. The fall currently seen in stock markets reflects part of that gloom and also concerns about companies' profits.
Amazon said that it expects losses despite higher income as safeguarding workers and customers from COVID-19 costs surge. Apple refrained from providing guidance in a rare move. US President Donald Trump's suggestion that coronavirus originated in Wuhan lab also dampens the mood. The deteriorating relations between the world's largest economies are hurting the global economy.
Similar to Europe, the US economy remains in dire straits, with unemployment claims nearing four million once again. The US lost some 30 million jobs since mid-March and personal consumption plunged by 7.5% last month.
The first hint toward April's Non-Farm Payrolls report is due out on Friday – US ISM Manufacturing Purchasing Managers' Index. The employment component and the headline figure are both likely to plummet, reflecting the severe downturn in the sector.
See US ISM Manufacturing PMI April Preview: Free fall, is there a parachute?
It is essential to note that most European countries are off for the May 1 holiday, lowering liquidity and potentially triggering higher volatility.
EUR/USD Technical Analysis
The Relative Strength Index on the four-hour chart is nearing 70 – almost at overbought conditions. Other indicators are positive – the currency pair trades above the 50, 100, and 200 Simple Moving Averages on momentum remains to the upside.
Resistance awaits at 1.0970, the daily high, and it is followed by April's peak of 1.0995. Next, 1.1045 and 1.1090 await it.
Support is at 1.0935, the daily low, followed by the former stubborn cap of 1.0890. The next levels are 1.0860 and 1.0810.
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