EUR/USD Forecast: Trump-ed up above the channel and finally a genuine reason to rise

A tectonic shift among the Teutons? Germany is inching closer to fiscal stimulus – and if that happens, it would provide the euro a long-term boost. Olaf Scholz, the center-left finance minister, is pushing to allow local governments some slack in spending. His intentions were met with objection from Chancellor Angela Merkel's ruling CDU party, but it is fair to say that something is changing.

The European Central Bank and several governments in the eurozone have urged Berling to open its purse strings well before the recent coronavirus scare. Monetary policy seems to be exhausted and the lack of investment is weighing on the whole continent. 

Europe's largest economy has been sticking to its Schwarze Null policy – a minimal fiscal surplus. Germany's constitution contains a limit debt-spending which comes into question when yields on the country's debt are negative. 

EUR/USD has also been benefiting from US dollar weakness. Investors are flocking into the safety of American bonds, pushing yields – such as the ten-year returns, now around 1.30% – to record lows.

Moreover, the short end of the curve is now pricing in no fewer than three rate cuts from the Federal Reserve this year, with the first coming in April. The initial move was priced for June only on Wednesday. The potential for a rate cut – urged by President Donald Trump – is weighing on the dollar.

Trump finally addressed the coronavirus scare and tried to play it down. He said it is a minor flu and that the US is ready for everything. In the meantime, the number of infections is on the rise – including one without known origins in the US. 

Around Europe, Denmark, Estonia, and Greece have joined the long list of countries confirming their first cases while infections in northern Italy – the epicenter in Europe – continue rising rapidly. For the first time in this health crisis, the number of new patients outside China has surpassed those inside the country. 

Coronavirus may overshadow data

Investors will likely continue reacting to every virus-related headline. The depressing news is set to continue pressuring US yields and the dollar while optimism may boost the greenback. 

Two interesting US figures are due out today but their impact may be limited as they are from before the recent escalation in fears. Economists expect US Gross Domestic Product to be confirmed at 2.1% annualized for the fourth quarter, with consumption pushing the economy forward.

See US Fourth Quarter GDP Preview: Old news

Durable Goods Orders numbers for January will provide a first look at investment in 2020. However, it is essential to note that supply disruption was not so prevalent last month.

See US Durables Preview: As China turns

EUR/USD Technical Analysis

Euro/dollar has broken above the uptrend channel that accompanied it since last week. On its way up it also broke above the 100 Simple Moving Average on the four-hour chart and momentum is to the upside. The Relative Strength Index is nearing 70 – which represents oversold conditions. 

Resistance awaits at 1.0968, which provided support on the way down. It is followed by 1.0980, a support line from early February, and then by 1.1020 and 1.1035. 

Support awaits at 1.0940, a support line on the way down, followed by 1.0925, a resistance line from mid-February and by 1.0885, which separated ranges several weeks ago. 1.0860, 1.0810, and 1.0777 are next.