EUR/USD Forecast: On a slippery slope as virus resurgence risks reopenings, downtrend resistance looms

Erring on the side of caution with amid a rising R – the Reproduction Rate of coronavirus – is one of the reasons keeping the euro from rising. Germany's latest statistics – clean of the distorting weekend effect – have shown that R is at 1.07, meaning every person carrying the virus infects more than one on average. 

South Korea and China have both suffered new mini-waves of infections and some fear that recent reopenings in various European countries will also lead to an increase. Spanish, Italian, and French figures are due out later in the day.

In the US, the greater New York area continues gaining ground against the disease, with Governor Andrew Cuomo stating "we are at the other side of the mountain" – albeit calling for caution. On the other hand, other hot spots are emerging. Internal White House documents point to spikes in cities in Tennessee, Texas, and Iowa.

Anthony Fauci, one of the administration's senior doctors, is set to testify in front of a Senate committee and warn that easing restrictions too soon may lead to unnecessary suffering and loss of life. His expected message will likely contradict President Donald Trump's optimism about numbers going down "almost everywhere" and urging a return to normal. 

On the other hand, Trump contributed to calming tensions with China, dismissing the idea of reopening Phase One of the trade deal. He may return to blaming the world's second-largest economy for the spread of COVID-19.

The safe-haven US dollar is set to rise amid growing Sino-American tensions and fears of second waves – wherever they happen.

Consumer Price Index figures for April will likely show a deceleration in US inflation, driven mostly by falling fuel prices. That may push the Federal Reserve to add further stimulus down the line.

See US Consumer Price Index Preview: The demand shock on prices.

The European Central Bank's policies are also on the agenda as the fallout from last week's ruling by the German constitutional court continues grabbing the headlines. Chancellor Angela Merkel tried to defuse tensions after judges in Karlsruhe ruled that parts of the ECB's bond-buying scheme are illegal. That court announcement weighed on the euro yet the bank remained defiant. 

The bank's most recent Pandemic Emergency Purchase Program (PEPP) worth €750 billion may run out as soon as September. Without further support from the ECB, the government may struggle with higher borrowing costs amid a deep recession. Further developments on this power struggle between the central bank and its host country may continue moving the common currency.

All in all, EUR/USD traders have many factors to take into consideration.

EUR/USD Technical Analysis

Euro/dollar is trading below downtrend resistance which has accompanied it since early May. Uptrend support is rising below. Momentum on the four-hour chart is pointing to the upside while the currency pair remains capped by the 50, 100, and 200 Simple Moving Averages.

All in all, bears are in the lead.

Support awaits at 1.0780, which is where the uptrend support line hits the price. It is followed by 1.0765, May's low, and then by 1.0730, April's trough. 

Resistance is a 1.0855, which capped it several times and is where the 100 SMA hits the price. The stubborn cap of 1.0890 is the next line to watch and it is followed by 1.0925 and 1.0970. 

More Why markets are up, risks that are underpriced, indicators to watch – Interview with Ipek Ozkardeskaya