EUR/USD Forecast: Bond auction over, bulls are back in full force and may extend gains

  • EUR/USD is rising as the dollar retreats alongside yields after the US bond auction.
  • Washington's fiscal impasse, vaccine hopes, and jobless claims are in play.
  • Thursday's four-hour chart is showing that bulls are in control.

Buy low, sell high – that ancient logic seemed to work in bond markets, this time with a substantial impact on the dollar. Investors sold off US treasuries ahead of the massive $38 billion auctions on Wednesday, pushing bond yields higher and boosting the dollar.

Once Uncle Sam issued that debt at a relatively high yield, traders piled into bonds, pushing yields lower and taking the air out of the dollar

Moving away from that auction, there are other reasons to see EUR/USD gaining ground. First, the US coronavirus situation is better than it used to be but is improving at a snail's pace. The old continent – despite an upswing in infections – is better positioned. 

Source: FT

More importantly, the burning issue in Washington is the impasse on Capitol Hill – Democrats and Republicans are still "far apart" on reaching an accord on the next fiscal relief package. Federal Reserve officials have been urging lawmakers to act, raising their rhetoric. 

Mary Daly, President of the San Francisco branch of the Federal Reserve, said that there is little evidence to support the claim that high unemployment benefits discourage seeking work in a deep recession. Eric Rosengren, her colleague from the Boston Fed, said that the US failure to control the virus is hiring the recovery and that temporary job losses could turn permanent. 

Despite concerns about the US economy, investors are optimistic about a vaccine, as efforts are accelerating – especially after Russia's controversial announcement about developing immunization. The S&P 500 briefly hit a new high on Wednesday, and the risk-on mood is pushing the safe-haven dollar down.

Later in the day, weekly jobless claims will provide an updated view of the US economy. Applications dropped sharply last week after several weeks of worries. Another upbeat figure could help the greenback recover, but nothing is certain.

See Jobless Claims Preview: Lower claims sign of an economic acceleration?

All in all, the deck is stacked against the dollar and in favor of the euro, at least for now.

EUR/USD Technical Analysis

Euro/dollar has recaptured the 50 Simple Moving Average on the four-hour chart and momentum turned positive. Moreover, the world's most popular currency pair bottomed out above the 1.17 level – setting a higher low. The Relative Strength Index remains below 70, thus outside overbought conditions.

All in all, bulls are in control.

Resistance awaits at 1.1850, which provided support last week, and then by 1.1915, the two-year high set around the same time. The next level is the psychologically critical 1.20.

Support awaits at 1.1805, which capped EUR/USD earlier in the week. Further down, 1.1750 and the 1.17 level mentioned earlier await EUR/USD.

More Traders are looking at the shiny thing and not the big picture

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