EUR/USD Forecast: When a 100-pip rise looks like a dead cat bounce, another massive crash is likely

King dollar may be sleeping on his throne – but he is not ready to let go. EUR/USD's 100-pip rise from the lows seems like another "dead cat bounce" as volatility remains elevated. It reached 1.0652 on Thursday, the lowest since 2017. The greenback is taking a breather from its surge that is based on funding stress that sent investors to the world´s reserve currency in a "sell everything mode".

Central banks have significantly contributed to alleviating pressures. The Federal Reserve has announced dollar swaps with additional central banks on Thursday, following up on the initial move from Sunday. The European Central Bank's announcement of €750 billion in new bond-buying late on Wednesday is still echoing in markets. 

While central banks are moving quickly, governments are are somewhat behind. Several European countries such as Italy, Spain, and France, have pledged to spend to mitigate the economic fallout from the coronavirus crisis but there is no coordinated move. Germany has opened the door to ditching the debt brake and even warmed up to backing all-European bonds – aka "corona-bonds" – but a comprehensive plan is still lacking.

In the US, lawmakers continue working on a plan worth over a trillion dollars but differences between Democrats and Republicans are delaying its advance, with Monday set as a target for completing a deal. In the meantime, two Senators have reportedly sold their stocks after receiving a briefing about coronavirus several weeks ago, while they continued reassuring the public. 

Substantial spending – from both sides of the Atlantic – is set to provide support to markets, weighing on the dollar and allowing EUR/USD to recover. Feet-dragging will likely send euro/dollar falling again. Investors are not worried about future bills and monetary financing.

See Is money printing positive for currencies? Lessons from Lagarde's largesse, Bailey's bailout

Disease and economic pain continue spreading

In the meantime, the disease keeps spreading, with the global death toll surpassing 10,000 and the number of infections nearing 250,000. Italian mortalities have surpassed China's, and US infection reached 14,000. 

On the economic front, US jobless claims leaped from 211,000 to 281,000 in the week ending on March 13, in the first sign of rising unemployment in the world's largest economy. President Donald Trump reportedly asked states to tone down employment reports. 

California, America's largest state and the home to Silicon Valley have ordered residents to stay at home, in the strictest lockdown measure so far. Other states may follow and inflict more economic damage. 

See Is the US already in a recession?

In the old continent, Italy, the hardest-hit country, may extend its lockdown to May 1 – and even deepen it. Most of the continent's economies are now paralyzed. 

Even if governments do "whatever it takes" as former ECB President Mario Draghi said, the real turnaround may come only when Italy or any other Western country, is on a strong footing to curb the spread of Covid-19 and more importantly for markets – begin lifting the restrictions. Conversely, finding an effective cure or a vaccine would provide even more hope. However, that may take several months. 

In the immediate term, the end of the week may trigger more volatility, especially amid the "quadruple witching" on Wall Street – a cluster of options expires that triggers volatility in usual times – and these are abnormal times. After shares recovered on Thursday, there is room to the downside on Friday – and EUR/USD may suffer. 

In general, EUR/USD may drop with stocks, while it may rise if equities end the week on a high note. 

EUR/USD Technical Analysis

Euro/dollar is suffering from downside momentum on the four-hour chart and trades below the 50, 100, and 200 Simple Moving Averages – all bearish signs. Moreover, the recent bounce has pushed the Relative Strength Index is above 30 – outside oversold conditions and allowing for more falls.

All in all, bears are in control. 

Some support awaits at 1.0720, a support line from 2017. The recent low of 1.0652 is the next level to watch, and it is followed by 1.0580.

Resistance awaits at 1.0777, the previous 2020 low, and then by 1.08, which provided temporary support earlier this week. It is followed by 1.0855, a cap from February, and then by 1.0975, a swing high from earlier this week.

More: Coronavirus market turmoil explained: Dollar, stocks, gold, oil, and more