EUR/USD Forecast: Ready to resume its rise? Euro showing resilience alongside uptrend support

Is the downside correction over? The common currency has been giving some ground as stocks retreated and the dollar clawed back some of its losses – but that seems limited. 

After the "weekend effect" pushed US COIVD-19 statistics lower in reports published on Monday, figures coming out of various US states painted a darker picture. Infections topped 10,000 in both California and Texas, with the latter struggling to manage its overwhelmed hospitals. While cases in Florida remained below 10K, the positive test rate is at a worrying 16%. 

Overall, the US has over three million confirmed cases and around 131,000 mortalities – and the death curve has stopped flattening.

Source: New York Times

President Donald Trump continues playing down the disease and wants schools to reopen in September. The US formally announced it will be leaving the World Health Organization (WHO) in 2021, cutting the multilateral institution from its largest funder. 

The White House is also mulling destabilizing the Hong Kong Dollar peg – which has been maintained since 1983. Several policymakers wish to punish China for tightening its grip on the city-state. However, breaking the peg is a considerable undertaking – around $5 trillion are parked in HK. Moreover, the Hong Kong Monetary Authority (HKMA) has the backing of China's central bank if it needs support with swap lines. 

USD/HKD is trading at the lower bound of the peg – showing the strength of the local currency. Investors seem to shrug off the threats, but the president may feel urged to act ahead of the elections. Trump continues trailing rival Joe Biden by around nine points. 

See Hong Kong Dollar Peg: How vulnerable is it and if it breaks, how will it happen? Explained

The old continent continues keeping the lid on the virus, with outbreaks limited to small localities – for now. Investors are already eyeing next week's events. Christine Lagarde, President of the European Central Bank, has hinted that her institution has done enough and will leave its policy unchanged. The ECB boosted its bond-buying scheme by €600 billion in June. 

The focus shifts to the EU Summit – the first post-pandemic face-to-face encounter – with the proposed EU Fund topping the agenda. The "Frugal Four" – Austria, the Netherlands, Denmark, and Sweden – have reservations about the plan. The European Commission's program, backed by Germany and France, includes grants worth €500 billion, funded mutually. The four rich countries prefer loans. Investors expect a compromise, but further feet-dragging may weigh on the common currency.

Overall, coronavirus, geopolitics, and speculation about the next "EU fudge" are likely to dominate trading.

EUR/USD Technical Analysis

Euro/dollar is trading above the long-term support line running from late May, as well as alongside a steeper one that was formed in early July when it bottomed out at 1.1185. Moreover, momentum on the four-hour chart remains to the upside and EUR/USD is holding above the 50, 100, and 200 Simple Moving Averages. 

Resistance is at 1.13, which capped the currency pair last week. It is followed by the critical 1.1350 level – a double top. Further up, 1.1385 and 1.1410 await EUR/USD.

Support is at 1.1260, the daily low, followed by 1.1220, a support line from last week. The next lines are 1.1185 and 1.1165.