EUR/USD Forecast: Down but not out, coronavirus advantage may send it back to uptrend channel

Shelter in place – that phrase can describe EUR/USD's behavior amid a market storm and also a potential setback for Houston. Markets have finally begun noticing the increase in US coronavirus cases seen in several large states such as California and Florida, where hospitalizations are on the rise.

Most significantly for stocks' reaction, infections and admissions are surging in Texas and especially in Houston. An official said that the situation is on the "precipice of disaster" and a football stadium may be repurposed as a makeshift hospital. Reimposing lockdown measures is on the cards. 

Stocks suffered the biggest fall since March, and the US dollar surged. However, the euro seemed to hold up in comparison to its peers. One of the reasons is that Europe – hit hard by the disease – continues showing a downtrend in COVID-19 cases while it is gradually opening up.

Contrary to Houston, a football stadium in Seville was used for its original purpose – hosting the first match in Spain's La Liga – albeit without an audience. More importantly, the European Commission is working on plans to reopen borders and flights. Germany, the continent's largest economy, is also moving forward with encouraging travel.

Will the US or several states impose new stay-at-home orders? Treasury Secretary Steven Mnuchin rejected the notion and said it would cause more harm than good. If governors announce new measures, the dollar has room to rise. 

President Donald Trump is returning to the campaign trail, starting in Tulsa, Oklahoma, a place chosen for its importance to the African-American community, attempting to soothe relations after massive demonstrations against racial discrimination.

However, his campaign asks participants to waive liability in case they contract COVID-19 at the event, a controversial move that may deter many from attending. 

A return to normal economic activity does not depend only on orders from above but also on people's behavior. The University of Michigan's preliminary Consumer Sentiment Index for June is set to show improvement, albeit from low ground.

Will Consumer Sentiment Preview provide optimism? Discover how to get it!

Fiscal and monetary impact

Investors continue digesting the Federal Reserve's decision, in which the world's most powerful central bank pledged all its support – yet due to dire conditions. The Fed foresees a return to pre-pandemic Gross Domestic Product not before 2022. 

More: Fed fallout: Back to risk-off mood? Explaining what went down and what's next

Jerome Powell, Chairman of the Federal Reserve, urged the government to continue providing relief, and talks continue in Washington. Republicans seem reluctant to extend the special unemployment benefits, yet they will likely agree, facing elections.

Negotiations in European capitals over the ambitious EU Fund – which includes €500 billion grants raised by the Commission – also continue. Hopes that it will be approved continue underpinning the euro.

Market volatility has risen but it is somewhat more muted in EUR/USD – that may change as the week draws to its end. 

EUR/USD Technical Analysis

Momentum on the four-hour chart remains positive and EUR/USD bounced off the 50 Simple Moving Average – both bullish signs. While the currency pair dropped out of the uptrend channel, it is fighting to recapture it. Topping that line could trigger further gains. 

Euro/dollar is battling 1.1325 at the time of writing, a line that provided support on Thursday. The next cap is 1.1385, which was a temporary peak last week. Wednesday's peak of 1.1425 is the next level to watch.

Support awaits at 1.1275, the daily low, followed by 1.1240, a swing low from earlier in the week. Further down, 1.1190 and 1.1150 played roles on the way up.