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

EUR/USD has been struggling to hold onto 1.10 amid coronavirus fears.
The Federal Reserve is set to leave rates unchanged and hint about future policies.
Wednesday's four-hour chart is pointing to further falls for the pair.

Yohay Elam FXStreet

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.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

GBP/USD flies to two-week highs, targets 1.3400

GBP/USD trades well above the 1.3300 barrier on Thursday as the Greenback comes under renewed selling pressure following a softer-than-expected US NFP report in June. Meanwhile, Cable extends its multi-day recovery and looks to challenge 1.3400 sooner rather than later.

EUR/USD: Signs of life emerge above 1.1400

EUR/USD leaves behind two daily pullbacks in a row and advances to multi-day peaks near 1.1470 on Thursday, partially offsetting the sharp decline in place since June. The pair’s decline follows the intense retracement in the US Dollar, which is particularly sponsored by disheartening prints from June’s Payrolls and the sharp sell-off in USD/JPY. The US markets will be closed on Friday due to the Independence Day holiday.

Gold hits six-day tops past $4,100

Gold extends its bullish momentum on Thursday, climbing above the $4,100 mark per troy ounce to reach its highest level in a week. The precious metal’s sharp rebound comes as the US Dollar retreats following disappointing US NFP data.

Strategy's STRC volatility points to late Bitcoin cycle reset — Bitwise

The recent volatility surrounding Strategy's perpetual preferred stock, STRC, could signal that Bitcoin (BTC) is approaching a cycle bottom, according to Bitwise CIO Matt Hougan. In a Wednesday report, Hougan argued that the sharp decline in STRC and Strategy's MSTR stock should be viewed as "classic end-of-cycle dynamics" rather than evidence of a broader structural threat to Bitcoin.

The market may no longer be giving the Magnificent Seven a free pass

For much of the past three years, investing has felt surprisingly simple. Whenever markets stumbled, investors knew where to look. Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta and Tesla repeatedly led Wall Street higher, shrugging off inflation fears, higher interest rates and geopolitical shocks.

Kevin Warsh offers no policy clues: Why markets still got their answer

Financial markets came to Sintra looking for clues about the Federal Reserve's (Fed) next move. They largely left with confirmation that Fed Chair Kevin Warsh intends to make those clues much harder to find.