EUR/USD Forecast: (Temporarily) recovering from the coronavirus, fearing the Fed

Shaking out the disease? While the coronavirus continues spreading and claiming lives – 132 is the most recent death toll – markets have taken a breather from falling, allowing also EUR/USD to find its feet. The world's most popular currency pair has managed to hold onto 1.10 after dipping below that level – and hitting the lowest since early December. 

Nevertheless, this uptick could be temporary. The official number of those infected by the respiratory disease has neared 6,000 and surpassed that of SARS in 2003. Moreover, Germany reported human-to-human spread and the disease reached the Middle East – with the first cases reported in the United Arab Emirates.

The economic impact is growing as well. British Airways has suspended all flights to and from China. The world's second-largest economy extended its Lunar New Year holiday for another week and millions of people remain in an effective lockdown. 

Some experts expect the number of coronavirus infections to peak in around 10 days and the general sense is that the situation could further worsen before it improves. EUR/USD is vulnerable to a deteriorating mood.

Focus on the Fed

The Federal Reserve meets to make its decision for the first time in 2020 and the coronavirus is one of the topics on the agenda. Apart from the immediate economic impact, the market reaction – which pushed 10-year bond yields below 3-month ones, an inversion which implies an upcoming recession. 

The Fed is set to leave its interest rate unchanged after cutting it three times in 2019. Comments about the direction of rates, employment, and other issues are of interest and could rock the dollar. 

See 

• Fed Preview: Five things that will determine the dollar's direction
• Federal Reserve Preview: Stable policy and an uncertain future

Euro bulls may find solace in the relative calm in German politics as fears of an imminent breakup of the grand coalition have waned. The new leadership of the SPD – the center-left junior coalition partner – has climbed down from the more radical demands and it is set to find common ground with Chancellor Angela Merkel's center-right CDU.

Olli Rehn, a member of the European Central Bank's Governing Council, has said that the latest information on core inflation signals a rise – reiterating the cautious optimism sounded by Christine Lagarde, President of the ECB.

Overall, further coronavirus headlines and the Fed decision are set to move euro/dollar.

EUR/USD Technical Analysis

EUR/USD remains under pressure after losing the long-term uptrend support line. It continues its gradual decline and trades below the 50, 100, and 200 Simple Moving Averages on the four-hour chart. The Relative Strength Index is above 30 – thus outside oversold conditions. 

Overall, bears are in control.

Support awaits at the recent low of 1.0998. It is followed by 1.0980, which provided support in early December. Further down, the currency pair has support at 1.0940, a cushion from October. Next, 1.0905 and 1.0879 await it.

Resistance is at the recent high of 1.1025, followed by 1.1070, which provided support earlier this month. 1.1110 and 1.1125 are next.