EUR/USD Analysis: Fed’s emergency rate cut provided some respite for bulls

The EUR/USD pair started the week on a firm note – snapping four consecutive days of losing streak – and reversed Friday's downfall to near two-week lows. The US dollar was hit hard by the Fed's aggressive moves and prompted some short-covering. The US central bank slashed interest rates to zero and announced a massive bond-buying program to offset any negative impact from the coronavirus pandemic. This led to a steep decline in the US Treasury bond yields, which undermined the USD demand.

On the other hand, the Fed’s emergency decision resulted in the narrowing of rate differentials between the US and the euro area, which provided an additional boost to the shared currency and contributed to the pair’s goodish bounce. The pair rallied over 150 pips intraday and surged past the 1.1200 round-figure mark, albeit struggled to sustain at higher levels. Another round of a selloff in the US equity markets extended some support to the greenback’s status as the global reserve currency and kept a lid on any runaway rally for the major.

Meanwhile, the two-way price swings seemed rather unaffected by the disappointing release of the NY Empire State Manufacturing Index, which dropped to -21.5 in March as compared to +4 expected and the previous month's reading of 12. Nevertheless, the pair ended the day with strong gains and held steady, well within a narrow trading range, through the Asian session on Tuesday. Moving ahead, market participants now look forward to the release of the German Zew Survey for March and the US monthly retail sales data for some impetus. The key focus, however, will remain on developments surrounding the coronavirus saga, which might continue to act as an exclusive driver of the broader market risk sentiment and infuse volatility across the FX market.

Short-term technical outlook

From a technical perspective, the pair has managed to find acceptance above the 50% Fibonacci level of its February/March rally but struggled to extend the momentum further beyond 100-hour SMA. The latter, currently around the 1.1200-10 region, now coincides with 38.2% Fibo. level and should now act as a key pivotal point for intraday traders. Above the mentioned barrier, the pair is likely to surpass the 1.1235 intermediate supply zone and aim towards reclaiming the 1.1300 round-figure mark. The momentum could further get extended towards the 23.6% Fibo. level resistance, around the 1.1325-30 region.

On the flip side, the 1.1135 region (50% Fibo. level) now seems to protect the immediate downside and is followed by support near the 1.1100 mark. Any subsequent slide might continue to attract some dip-buying near the 1.1055 confluence support, comprising of 100-day SMA and 61.8% Fibo. level. A sustained break through the mentioned support levels might be seen as a fresh trigger for bearish traders and accelerate the fall further towards the key 1.10 psychological mark. Some follow-through selling might now turn the pair vulnerable to fall further towards 1.0900 round-figure mark en-route the next major support near the 1.0835 horizontal zone.