EUR/USD Forecast: To 1.0777 and below? ECB's “no-limits” approach and two other reasons to crash

"There are no limits to our commitment to the euro" – Christine Lagarde's words, during the European night, after announcing a whopping €750 billion bond-buying scheme. EUR/USD initially responded positively, before turning south again.

The President of the European Central Bank convened an emergency meeting of the Governing Council to launch the Pandemic Emergency Purchase Program (PEPP) in which it will buy both private and public sector securities – a response to the coronavirus crisis. The ECB will relax its self-imposed limits on bond-buying, including buying Greek debt. Moreover, Lagarde said more can be done as "extraordinary times require extraordinary measures"

The euro benefited from the pledge to help, but flooding the world with currency means every euro's value is diluted. The coronavirus-related move comes on top of the bank's standard QE programs. That is the first downside factor for the euro.

The second factor is the devastating spread of the disease in the old continent and the ongoing lockdown. The number of Covid-19 cases in Europe has surpassed that in China – where the respiratory disease originated. Italy reported another daily record in deaths with 475 on Wednesday with mortalities rising everywhere. 

German Chancellor Angela Merkel addressed the nation in a rare event, and so did Spain's King. Additional countries are imposing shutdowns to contain the spread but choke the economy. Airlines in dire straits and automakers are closing plants. 

The third factor weighing on EUR/USD – and that may push it to new 2020 lows – is the extreme demand for the dollar. The world's reserve currency is now the ultimate safe-haven. Investors are in a "sell-everything" mode – trading was halted on Wall Street once again – and money flows to the US dollar. 

The Federal Reserve is providing more liquidity – almost on a daily basis – to alleviate pressure in markets, but that does not seem to ease demand. Congress has advanced one coronavirus relief bill and the administration is working on massive stimulus, including "helicopter money" – sending a cheque to every American. Moreover, White House adviser Larry Kudlow said the US may buy equities, but that seems a remote option for now. 

Coronavirus has taken the lives of 150 people in the US, according to Johns Hopkins University, and infections near 10,000. A leap in cases is expected as America ramps up testing. 

GBP/USD crashed some 600 pips to the lowest since 1985, AUD/USD tumbled to the lowest in 17 years, and even the yen – until recently the No. 1 choice in times of trouble – is under immense demand.

Is it EUR/USD's turn, at least to fall to the lowest since 2017? 

The answer depends on fast-moving developments, with health-related headlines, additional lockdowns, layoff announcements, and policy responses – now from governments – in the limelight. 

One economic figure stands out – and it is a high-frequency one that now returns to the spotlight. Weekly jobless may show a rise in claims as shutdown may trigger the first layoffs. 

See: Jobless Claims Preview: A rise could signal labor market unrest

EUR/USD Technical Analysis

The Relative Strength Index is above 30 – outside oversold conditions and allowing for more falls. The currency pair is trading below the 50, 100, and 200 Simple Moving Averages and momentum remains to the downside. 

Support awaits at 1.08, which was the low point on Wednesday. It is followed by 1.0777, the 2020 low. Further down, the next levels to watch are 1.0720 and 1.0650. 

Some resistance is at 1.0855, which capped the pair in late February, followed by 1.0975, the daily high, and then by 1.1050 and 1.11.

More: US dollar rules in currency market funding frenzy