EUR/USD Forecast: Is Europe's easing enough? Lifting of lockdowns battles ECB uncertainty

Lifting the lockdowns is lifting the euro – Europe's largest countries have all reported significant improvements in COVID-19 statistics and are moving to reopen the economies. As the pace is gradual, can the uptrend continue?

Encouragement in the old continent

Spain, the fourth-largest economy, reported 288 deaths on Saturday, the lowest in over a month and active cases are dropping as well. After allowing children to leave their homes with their parents, Prime Minister Pedro Sánchez said adults will also be able to leave the house for a walk or exercise from May 2. He will lay out a more detailed plan on Tuesday.

Italy, the third-largest economy and the hardest-hit country, announced a three-pronged program starting from May 4. It consists of reopening the manufacturing sector and culminating with allowing bars and bars to open from on June 1. The country reported 260 mortalities on Sunday, the lowest since March 11.

In France, 242 losses of life were reported on Sunday, also the lowest in more than a month. President Emmanuel Macron is scheduled to propose a plan to ease restrictions on Tuesday as public support for extending the lockdowns has dipped below 50%. 

Germany, the largest economy, confirmed 110 deaths on Monday, also the lowest since mid-March. The country gradually opened businesses last week and may consider additional steps. 

US situation and central bank action

In the US, the spread of the virus is also slowing and several states are moving toward reopening as well, yet New York is set to remain under shelter-at-place orders through May 15. The relative optimism is weighing on the safe-haven dollar. President Donald Trump has refrained from holding briefings after his suggestion to inject disinfectants backfired. State governors are at the forefront.

Another reason for the cheerful mood is the Bank of Japan's announcement that it is lifting restrictions to buying bonds. The BOJ kicks off a busy week for central banks, including the Federal Reserve and the European Central Bank. The Fed is likely to leave its policies unchanged after nearly two months of non-stop action, including slashing rates to 0%, enacting swap lines with other central banks, and unprecedented Quantitative Easing. The Fed may publish new forecasts, which are of high interest. 

See Fed Preview: Taking a break after two months of madness? Addicted markets may fall, dollar rise

For the euro, the focus will likely be on the ECB, which is under pressure to expand its Pandemic Emergency Purchase Program (PEPP) which is currently limited to €750 billion. The dire situation of the economies – especially Italy – and the inability of leaders to agree on significant fiscal stimulus may force action from the Frankfurt-based institution. Christine Lagarde, President of the ECB, already vowed to do whatever is needed but may be faced with opposition from monetary hawks. 

Overall, speculation over reopening the economies and central banks are in the spotlight.

EUR/USD Technical Analysis

Euro/dollar has surpassed the downtrend resistance line that capped it from mid-April but is struggling to conquer the 50 Simple Moving Average on the four-hour chart. It remains capped by the 100 and 200 SMAs. Momentum and the Relative Strength Index are flat. All in all, the picture is improving for the bulls but remains mixed.

Resistance awaits at 1.0885, which held the currency pair down late last week, and then by 1.0930, a swing high from early in the month. The monthly high of 1.0995 is next.

Support awaits at 1.0810, a low point last week, and then by the early April trough of 1.0770 and the monthly low of 1.0727.

More Reopening: Timing is tough and two assets have more room to rise regardless