EUR/USD Forecast: On the verge of losing uptrend support and for (mostly) good reasons

"I would do anything for love, but I won't do that" – paraphrasing Meat Loaf's 1993 hit song resonates with the words of Jerome Powell, Chairman of the Federal Reserve. The world's most powerful central banker vowed to continue supporting the economy in times of troubles and also called on elected officials to do more. However, he rejected the idea of setting negative interest rates and said all his colleagues agree on the topic and have not changed their minds.

By "not doing that" – moves that have failed to lift growth and inflation in Japan and in the eurozone – Powell pummeled stocks down pushed the dollar up. Bond market pricing of rates in 2021 flirted with sub-zero borrowing costs and investors still see it as another source of stimulus.

The Fed Chair also disappointed President Donald Trump, who wanted the "gift" of negative rates and said that while Powell is the "Most Improving Player," they disagree on the topic. 

See Powell Analysis: Doom, gloom, and no negative rates set to tank stocks, boost dollar

Treasury Secretary Steven Mnuchin, who spoke with Powell on Wednesday, painted a more hopeful picture:

I think what the chair was saying is that there could be significant downside risk, but on the other hand” if the U.S. reopens its economy slowly and carefully, “next year we’ll be back to having a great economy just like we had before

Is the US economy safely returning to normal? Recent US COVID-19 statistics have shown an improvement, especially in the hardest-hit New York area. However, several new hotspots are popping up. Anthony Fauci, the White House's most prominent doctor in the coronavirus taskforce, reiterated that early reopening may cause unnecessary death and suffering and Trump said his comments are "unacceptable." Firing Facui would undermine confidence and serve as another risk factor.

Weekly jobless claims are due to show an increase of 2.5 million applications in the week ending May 8, extending the ongoing downtrend, yet still reflecting a devastating hit to the US economy. 

See Initial Jobless Claims Preview: Marking time on the bottom

Another reason for the souring mood and the demand for safe-haven dollar is the ongoing tension between the US and China. Trump said that the impact of coronavirus is 100 times stronger than any trade deal, seeming to reiterate his blame on the world's second-largest economy. 

In the old continent, the Italian government signed off a new stimulus bill worth €55 billion. The country that suffered most from the virus – and that has a high debt--to-output ratio – is slowly emerging from lockdown. Bond markets seem to accept the growing Italian deficit, perhaps counting on the European Central Bank to continue backing Rome.

Nevertheless, fears about the ECB's powers have not fully faded. The German constitutional court's ruling – deeming part of the bank's bond-buying scheme as illegal – may still weigh on the euro.

Spain, which was also severely struck by COVID-19, published a survey showing that only around 5% of the population has antibodies that imply immunity. According to the broad study, the death rate is estimated at around 1% and another deadly wave in the autumn cannot be ruled out. 

Overall, euro/dollar traders have many topics to ponder about. 

EUR/USD Technical Analysis

Momentum on the four-hour chart is leaning lower and the currency pair is trading below the 50, 100, and 200 Simple Moving Averages. Will it fall? EUR/USD is holding above uptrend support within the channel but is on the edge. 

Immediate support is at 1.0805, which is where the trend line hits the price. The next cushion is 1.0785, the weekly low, and then 1.0765, last week's trough. The next lines to watch are 1.0730 and 1.0640.

Resistance awaits at 1.0865, which is where the 200 SMA hits the price, and then 1.0895, the weekly high. Further above, 1.0925 and 1.0970 await the pair.