EUR/USD Forecast: New yearly highs? California's coronavirus issues outweigh Italy's
- EUR/USD has been rising as the dollar slides with falling yields.
- Growing concerns about coronavirus may push the pair to new 2020 highs.
- Thursday's four-hour chart is pointing to further gains.
"You can check out any time, but you can never leave" -- the words from Hotel California are relevant to the dollar's situation -- it cannot escape what is going in the Golden State -- not due to any techlash but due to California's declaration of a state of emergency. With an economy the size of France, California's issues eclipse those of Italy.
The eurozone's third-largest economy announced closing schools -- a drastic decision. However, markets have already digested Rome's decision from Wednesday and are focused on what is going on on the other side of the world.
After a day of gains, Wall Street is down again, and the rotation of investors from stocks to bonds is weighing on the dollar, as lower yields make the dollar less attractive and imply another rate cut by the Federal Reserve. The world's most powerful central bank has already slashed rates by 50 basis points this week and is on course to continue cutting from the current 1-1.25% range. While the European Central Bank is also projected to reduce borrowing costs next week, its deposit rate is at -0.50% and has limited scope to act.
Overall, the US is lagging behind the eurozone in both treating the disease and with monetary stimulus. The direction of travel matters more than the economic situation, which is more favorable in the US.
Additional coronavirus headlines may worsen the picture for the currency pair, but the trend seems to be lower US returns on bonds and further falls for the dollar.
EUR/USD Technical Analysis
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Euro/dollar is trading near 1.12 and the yearly high is 1.1215. This is a critical level for extending the rally. Momentum on the four-hour chart is pointing upward and the currency pair is well above the 50, 100, and 200 Simple Moving Averages. Moreover, the Relative Strength Index has dropped below 70, exiting overbought conditions and allowing for more gains.
Above 1.1215, resistance awaits at 1.1240, followed by 1.1275 and 1.1320.
Support awaits at 1.1140, 1.1120, and critically at 1.11, a separator of ranges. 1.1055 and 1.1010 are below.
Author
Yohay Elam
FXStreet
Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.
