EUR/USD Forecast: Three dark clouds threaten to push the euro below critical support

The elephant in the room can be ignored for a long time – but then it goes wild. That is what is happening with rising eurozone COVID-19 cases, which have been advancing since mid-summer but are now triggering restrictions that are taking an economic toll. That is only one reason to favor a fall in EUR/USD.

1) No romance in Paris

France announced a nighttime curfew in Paris and several other large metropolitan areas to combat the rapid spread of coronavirus in the eurozone's second-largest economy.

Germany, the continent's economic "locomotive" is considering imposing limitations if the situation fails to improve. The country has reported the largest number of cases since April. Spain, The Netherlands, and Belgium had been struggling for long weeks. 

The drop in temperatures in the return of children to school is attributed to the increase.that is straining health systems, the economy, and the common currency.

Source: FT

Christine Lagarde, President of the European Central Bank, is set to speak later in the day and may reiterate her institution's pledge for accommodative policy – potentially further weighing on the euro. 

2) Stimulus stalls

US Treasury Secretay Steven Mnuchin has been one of the most prominent proponents of providing further support to the US economy, and even he seems frustrated. While he is following President Donald Trump's wishes to strike a deal, he seems to be running out of time.

Senate Republicans – who are skeptical about government aid – are focused on nominating Amy Coney Barret to the Supreme Court. They may lose the Senate in the elections. House Democrats are reluctant to compromise and give Trump a political win ahead of the vote. 

Without another relief package, markets could retreat and the safe-haven dollar may catch a bid. 

3) Disappointing data

COVID-19 cases are moving up also in the US. Without government support, the recovery is already showing signs of a slowdown – and that may happen again with Thursday's weekly Unemployment Claims. After dropping from the millions to under 900,000, new applications seemed to have hit a wall lately. 

Apart from another chance of falling short of estimates, claims could also climb due to a backlog from California. If the labor market stops improving, the greenback could receive more flight-to-safety flows. 

See US Initial Jobless Claims Preview: Extraordinary normality

Overall, EUR/USD has reasons to fall. 

EUR/USD Technical Analysis

Euro/dollar is suffering from downside momentum on the four-hour chart and trades below the 50 and 200 Simple Moving Averages. However, it is still holding above the 100 SMA, so bulls may still hit back. 

Critical support awaits at 1.1720, which provided support twice in recent weeks. A break below that level opens the door to 1.1685, which was a separator of ranges in late September, followed by 1.1625 and 1.1610. 

Resistance is at 1.1770, which was a swing high earlier this week, followed by 1.1810 and 1.1830, both high points in October. 

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