EUR/USD Forecast: Buying opportunity? Three reasons why this coronavirus calm may be temporary

• Italy's decision to lock down the whole country may lead the way for others. 
• President Trump is set to lay out a plan for the stimulus that may fall short of expectations. 
• Tuesday's four-hour chart is pointing to further gains.

After so many "dead cat bounces" for the euro – it seems that now it is the dollar's turn. Markets are rising after Monday's sharp sell-off – which saw trading halted on Wall Street for the first time since the crisis. The crash in oil prices – triggered by Saudi Arabia's decision to kick off a price war – exacerbated fears stemming from coronavirus.

Investors are partially moving back into stocks and out of bonds.  The rise in US yields is pushing the dollar higher as expectations for the Federal Reserve to cut rates is fading and EUR/USD has dropped below 1.14. 

Markets are correcting the sharp falls and are also encouraged by US President Donald Trump's intention to provide some fiscal stimulus, with detail due out later in the day. Moreover, Chinese President Xi Jinping has visited Wuhan, the epicenter of the virus in a show of confidence.

Nevertheless, these moves may be temporary. 

Here are three reasons:

1) The European situation is worsening

It took Giuseppe Conte, Italy's PM, less than 48 hours to move from locking down only the north of the country to all the country. In a dramatic press conference late on Monday, Conte announced that severe restrictions will apply to all the eurozone's third-largest economy. Italy's cases jumped to above 9,000 with mortalities nearing 500.

In addition, Spain announced it is closing schools in the most affected areas, including the capital region of Madrid. France bans gathering of 1,000 people and Germany confirmed the first deaths from coronavirus on Monday. 

Concerns around Europe may later weigh on markets and send investors back to the safety of US debt, boosting EUR/USD.

2) Slow US response

President Trump has finally opened the door to fiscal stimulus in addition to specific budgeting for treating the virus. Nevertheless, these may be too little and too late. The administration is considering a payroll tax cut which – like the Federal Reserve's rate cuts – addresses demand and not supply, the main issue.

Moreover, the president continued playing down the severity of the crisis by blaming "fake news" on Monday's stock market fall and comparing coronavirus to the flu.

While testing for the respiratory disease is ramping up, it is still lagging behind – including in the White House. Mike Meadows, the president's Chief of Staff, is in self-isolation after being in contact with a person infected with the virus. Vice President Mike Pence said that he had not been tested and that he has no information if Trump underwent a health check.

When details of the plan come out later, markets may be disappointed at the details – and the ongoing lack of leadership. An initial rise in stocks may send Trump back to his complacency. 

3) Not overbought anymore

On Monday, EUR/USD was overbought on both the four-hour chart and the daily one – extreme conditions. The Relative Strength Index on the 4h chart is now below 70, outside overbought conditions and allowing for more rises. 

The currency pair is trading above the 50, 100, and 200 Simple Moving Averages while momentum is positive.

Resistance awaits at 1.1410, a peak from the summer of 2019. It is followed by Monday's high of 1.1495. The next levels to watch are 1.1520 and 1.1575.

Support awaits at the daily low of 1.1330, followed by 1.1285, a stepping stone on the way up, and then by 1.1240, December's high. 1.1215 and 1.1170 are next.

More: Coronavirus Crash: Five reasons why markets are in full panic mode and why it is here to stay