EUR/USD Forecast: Corona-bonds to the rescue? More falls likely after another dead-cat bounce

Corona-bonds probably sounds better than euro-bonds – a concept that was taboo in Germany during the debt crisis. However, given the economic paralysis following the locking down of citizens, everything is on the table. After France pledged €300 billion, Spain discussed €200 billion of spending – 15% of Gross Domestic Product. 

The pledges come as coronavirus continues taking its human and economic tolls. The pandemic has already cost the lives of around 8,000 people and infected around 200,000 around the world.

However, the new fiscal stimulus has its issues as well. Individual governments and the EU's rising borrowing needs are pushing investors out of bonds on Wednesday, in moves that echo the debt crisis. The European Central Bank will probably need to provide monetary financing in order to stem the sell-off in bonds.

The numbers are rising quickly across the old continent – and so are the lockdowns, internal and external. The EU is imposing severe restrictions on travel into and out of the EU – and that is only one of the measures. The newsflow of companies announcing unpaid vacations, pleas for bailouts, and talk of "wartime measures" seems unstoppable. The German ZEW Economic Sentiment plunged to -49.5 – the lowest in a decade – and it is probably only the beginning of a series of horrible figures.

The trend is similar in the US, where Treasury Secretary Steven Mnuchin is pushing through a plan to send every American a cheque worth $1,000 or more. Additional steps could pile up to a bill worth $1.2 trillion – 50% more than Barrack Obama's stimulus plan from 2009. Nevertheless, US bonds are sold off, pushing yields higher.

It is already a severe crisis – threatening to turn into a global recession – is sending investors to the safety of the US dollar. EUR/USD dropped below 1.10 on Tuesday and is struggling to recover. Similar to the bounce in US stocks, the currency's pair's stabilization seems like a "dead-cat bounce" – which may lead to fresh falls sooner rather than later. 

Perhaps a more comprehensive plan from the eurozone and a pause in additional lockdowns could help the euro stabilize. However, perhaps bulls would need to wait for countries to begin removing restrictions – as China is gradually doing – before a substantial move up can begin. At the moment, trillions of pledges from both sides of the Atlantic seem insufficient. 

Overall, further health, lockdown, and stimulus headlines are set to rock markets.

EUR/USD Technical Analysis

Euro/dollar is trading struggling with the 200 Simple Moving Average on the four-hour chart and trades below the 50 and 100 SMAs. It is suffering from downside momentum while the Relative Strength Index is above 30 – outside oversold conditions. 

All in all, bears are in the lead. 

Significant support awaits at 1.0955, the daily low, and it also provided support on Tuesday. It is followed by 1.0875, which capped it in late February, and then by 1.08 and 1.0777. 

Resistance is at 1.1050, which is a separator of ranges, followed by 1.11, a support line from early March. Next, we find 1.1240, a swing high from earlier this week.