EUR/USD Forecast: Downside correction after 400+ pips rally? Overbought conditions, coronavirus data eyed

• EUR/USD has rallied toward 1.11 as the dollar sold off due to several reasons.
• Coronavirus figures, EU disagreements, and US consumer confidence are eyed.
• Friday's four-hour chart it pointing to overbought conditions.

Schadenfreude – the German word for being joyful from the misery of others – is what EUR/USD is experiencing. The US dollar is on the back foot due to a mix of factors, and the common currency is rising – despite having its own issues. EUR/USD has reached a high of 1.1086, over 400 pips above the multi-year lows recorded this week.

The greenback's main downside driver is the Federal Reserve's open-ended Quantitative Easing program announced on Monday. Jerome Powell, Chairman of the Fed, reiterated his commitment to the economy in a rare television interview and added that "we will not run out of ammunition."

The bank's unlimited checkbook is pushing stocks higher – rising on Thursday for the third consecutive day – and weighing on the safe-haven dollar. 

The second ongoing factor boosting equities and taking its toll on America's currency comes from the progress of the Senate's $2 trillion bill. The House will begin debating it today and will likely pass it late in the day. 

Another reason to sell the dollar in normal days – but that is far from cheerful for markets is the surge in US Unemployment Claims. These have surged to 3.283 million – an increase of 1,053% in one week – and the highest on record. Estimates ranged between 800,000 to four million, and perhaps investors were ready to absorb any number. 

While the increase may be temporary, the longer the crisis lasts, the more permanent these job losses become. President Donald Trump reiterated his desire to reopen the economy as soon as possible, yet the number of coronavirus cases continues surging. The US is now No. 1 in the number of infections with over 85,000. New York remains the hotspot.

See:

• Three million is only the beginning, three reasons why the dollar may rise
• US labor market reels as initial jobless claims soar far beyond the previous record

S&P futures are down early on Friday, indicating a potential end to three-day rally and perhaps a recovery fro the dollar. 

Troubles in the old continent

The old continent is struggling as well, with hospitals in Spain and Italy overwhelmed by the flooding of patients. While both countries have reported fewer deaths on Thursday, the curve may be flattening but remains far from being depressed. 

Moreover, EU leaders have failed to agree on a unified economic response. Germany remains opposed to issuing common bonds – dubbed "corona-bonds" while demands are rising from France, Italy, and Spain. A delay in the response may weigh on the euro. 

On the other hand, monetary stimulus is in full swing. The European Central Bank has abandoned its self-imposed limits on buying bonds and is ready to provide further assistance to governments via the Outright Monetary Transmissions (OMT) program from 2012, the peak of the euro debt crisis.

ECB President Christine Lagarde – who is in self-isolation after coming in contact with a Covid-19 infected person – is supportive of common bonds. The bank's bond-buying activities on Thursday sent bond yields down – especially of bonds of peripheral countries. 

Coronavirus cases from Spain are due out in the European morning, while figures from New York and from Italy come out later in the day. The disease has already taken the lives of over 24,000 people and infected over 532,000.

Apart from health headlines, the final US Consumer Sentiment figures from the University of Michigan for March will likely show another drop in sentiment. 

See Consumer Sentiment Preview: Outlook equals consumption

EUR/USD Technical Analysis

The Relative Strength Index on the four-hour chart is flirting with the 70 mark – signaling overbought conditions. On the other hand, EUR/USD topped the 200 Simple Moving Average after previously rising above the 50 SMA. The currency pair is battling the 100 SMA and momentum remains positive.

Resistance awaits at 1.1085, the daily high, followed only by 1.1240, a high point last week. The next level to watch is 1.1360, followed by 1.1410. 

Euro/dollar is battling 1.1050, and the next level to watch on the downside is 1.0950, which separated ranges last week. Next, 1.0890 was a swing high earlier this week and now works as support. It is followed by 1.0840, 1.0750, and 1.0640. 

See Coronavirus: Why the dollar has more room to recover and rally