EUR/USD Forecast: Another attack on 1.12 likely with fuel from the Fed as dollar's Biden bid fades

• EUR/USD is on the back foot after Biden leads on Super Tuesday.
• The Fed's emergency rate cut, coronavirus headlines, and top-tier US figures are eyed.
• Wednesday's four-hour chart is painting a mixed picture. 

A cup of Joe – the dollar is feeling energetic as centrist Joe Biden is in the lead in the Democrats' "Super Tuesday." While the former vice president lost California, he surprisingly won in Texas and in a long list of other states such as Massachusets. Leftist rival Bernie Sanders is trailing behind. Investors prefer a business-friendly candidate to run against President Donald Trump.

See Biden dominates Super Tuesday returns but nomination remains elusive

US bond yields and the US dollar are reacting positively to the political news, pushing EUR/USD lower.

Nevertheless, the greater story for financial markets is the coronavirus outbreak – and the Federal Reserve's dramatic response. The world's most powerful took the initiative and announced an emergency 50 basis-point rate cut to mitigate the economic fallout from the crisis.

Jerome Powell, Chairman of the Fed, failed to reassure stock markets which only temporarily recovered before investors concluded it may be insufficient. Demand for safe-haven bonds quickly resumed and ten-year benchmark yields hit a new all-time record below the 1% mark. 

Yields matter

Lower returns on American returns are weighing on the greenback. The collapse in yields means that the spread with benchmark German bunds – which are deep in negative territory – is diminishing.

And that is a positive factor for EUR/USD.

The Washington-based institution followed the Reserve Bank of Australia and the next central bank to follow is the Bank of Canada later in the day. Will the European Central Bank follow? Markets are pricing a 10bp cut in the ECB's April meeting. That would be only a fifth of the cut across the pond.

More importantly, the ECB has limited space to cut. After Tuesday's dramatic move, the Fed Funds Rate stands at 1% to 1.25% – and markets see another slash of borrowing costs in its scheduled meeting in two weeks' time.

In Europe, the Frankfurt-based institution's deposit rate is at -0.50% and these negative levels are weighing on European bonds. The ECB has limited room to act. 

In any case, monetary policy is no panacea to the economic shock from the illness. Fiscal policy is better suited to ramp up supply amid closed factories, not lower interest rates. Bruno Le Maire, France's finance minister, has called for governments to do more. So far, Berlin is not budging. If Germany puts its might into the game, the common currency could jump. 

See Fed Coronavirus Cut Analysis: Sell opportunity on stocks? Sugar rush cannot solve the supply problem

Coronavirus figures

The latest headline figures from the coronavirus outbreak include 93,000 infected, of which some 50,000 are cured. The death toll surpassed 3,000 and the mortality rate among those tested positive stands at around 3%. The disease continues spreading around Europe, with a leap in cases in Germany and Spain.

The number of deaths in America's Washington state is on the rise as well, while Brazil is joining the world's hot spots reporting many cases, alongside Italy, Iran, South Korea, and China. 

How is the US economy coping? Top-tier data from the world's largest economy may provide some answers. The ADP private-sector jobs report is set to show a sub-200,000 gain – back to healthy normal levels – after a whopping increase of 291,000 in January. The report serves as a hint toward Friday's jobs report.

See ADP Employment Change Preview: Fears but few facts

The ISM Non-Manufacturing Purchasing Managers' Index is forecast to show ongoing solid growth in the US' largest sector. with a score of around 55 – above the 50-point threshold separating expansion and contraction. 

However, businesses may respond to coronavirus fears and send the indicator lower. In China, Caixin's Services PMI crashed to 26.5 – the lowest on record. Final eurozone services PMIs are unlikely to confirm modest growth with scores just above 50 points. 

See ISM Non-Manufacturing PMI Preview: The Fed, US Treasuries, and the dollar

Overall, it is a busy day including coronavirus updates, political developments, central bank speculation, and US data. 

EUR/USD Technical Analysis

Euro/dollar bulls are benefiting from higher highs and higher lows. Momentum on the four-hour chart is to the upside and the currency pair trades well above the 50, 100, and 200 Simple Moving Averages. The only downside is that the Relative Strength Index is just around 70 – on the verge of overbought conditions. That may limit its gains.

Resistance awaits at 1.1180, which was a swing high earlier this week. It is followed by 1.1215, Tuesday's high –which is also the peak for 2020. Next, 1.1240 is eyed.

Support awaits at 1.1140, the daily low, followed by 1.1120, a high point from earlier this year, and by the round number of 1.11. It worked as support this week and as a resistance line in early February. 1.1050 and 1.1010 are next.