EUR/USD Forecast: Overbought conditions, US jobless claims, and coronavirus may curb the rally

Investors seem to have fixed rose-tinted glasses to their faces – or see the shining glass half full. The increase in global stocks has pushed the safe-haven dollar down, allowing EUR/USD to reach the highest since June 11. 

Massive efforts to find a cure or a vaccine to COVID-19 are partly behind the most recent upswing. Emergent BioSolutions from Maryland is working on a plasma-based drug that will help protect healthcare workers from the disease. Moderna from Massachusets is advancing in its vaccine efforts – and there are dozens of attempts to tackle the illness, from America's Novavax to Oxford's Jenner Institute and up to China and Japan.

Equity bulls are also benefiting from the ongoing support by the Federal Reserve, which continues pumping liquidity via its bond-buying scheme. Can that continue without fiscal support? Lawmakers in Washington have yet to announce a new relief/stimulus package.

Optimism may also come from the administration's push to reopen schools – against the advice of the Center for Disease Control. Investors seem to be shrugging off worrying coronavirus figures – somewhat similar to the attitude in February. 

America's case count officially topped three million, with a record 59,000 daily infections reported on Wednesday. The positive test rate remains above 10% in several states – with laboratories overwhelmed in Arizona and other places. Moreover, hospitalizations are on the rise and even deaths – which were on a downtrend – began accelerating. 

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Figures from Florida, California, Texas, and other states will be closely watched as well as an update on the labor market. Weekly jobless claims are set to hold up above one million in the week ending on July 3 while continuing claims for the previous week could also remain stubbornly high, near 20 million. 

See US Jobless Claims: Employment is up, why are claims not down?

The encouraging Non-Farm Payrolls report for June – which showed an increase of 4.8 million jobs – is based on data from the first half of the month, just before cases began surging. 

In the old continent, leaders have yet to agree on the EU Fund, with the clock ticking toward the first face-to-face summit next week. German Chancellor Angela Merkel – who devised the plan with French President Emmanuel Macron – urged countries to seize the moment and act. The "Frugal Four" are reluctant to sign off on a program that includes grants to member states they see as profligate. 

Roberto Gualtieri, Italy's finance minister, suggested his battered country may tap the bailout fund – insisting there is no stigma in doing so. Spreads between Italian and German ten-year bond yields remain depressed around 160 basis points. 

Christine Lagarde, President of the European Central Bank, has also called on governments to act, yet she has lowered her expectations for an imminent announcement. The ECB will announce its decision next week.

See European Central Bank Preview: EUR/USD depends on Lagarde's fearless nudging of the Frugal Four

Overall, the eurozone currently enjoys several advantages over the US, yet a change in the market mood – stemming from US concerns – may boost the safe-haven dollar. 

EUR/USD Technical Analysis

The Relative Strength Index on the four-hour chart is above 70, pointing to overbought conditions – and implying a downward correction. However, momentum remains positive and the currency pair is trading above the 50, 100, and 200 Simple Moving Averages. 

Resistance is at 1.1370, the daily high, followed by 1.1420, a high point in early June. Further up, 1.1495 awaits EUR/USD.

Support is at 1.1350, the former triple top, followed by the round 1.13 level, which worked as resistance in early July. Further down, 1.1260 is next.