EUR/USD: Corrective advances to gather pace above 1.0870

EUR/USD clings to the recent recovery gains above 1.0850, as we progress towards the European opening bells, with the dollar bulls on the back seat after a wild ride seen on Monday.

Coronavirus grips Italy, could likely keep EUR undermined

Despite the upside attempts seen in the shared currency, EUR/USD’s corrective advances from a 34-month low of 1.0777 are likely to remain limited as markets believe that the coronavirus outbreak in Italy is likely to throw Eurozone’s third-largest economy back into recession.

The fast-spreading coronavirus broke outside China over the weekend, claiming six deaths in Italy while more than 220 confirmed cases have been reported, with a majority in Northern Italy. The government asked 10 towns to be quarantined.

Meanwhile, the US dollar could likely continue benefiting from the increased haven demand should the coronavirus contagion risk mount. Also, the economic divergence between the US and Eurozone also remains in favor of the greenback, as growing German recession fears ramped up ECB Summer rate cut bets to almost 50%.

However, if the risk recovery extends into Europe, the US dollar could see a further correction, in turn adding to the upside in the spot. The bulls need a sustained break above 1.0870 for the recovery to gain momentum towards the 1.0900 level.

Markets will remain focussed on the coronavirus-related developments, especially in Italy, for fresh EUR/USD trades. In the meantime, the German Final GDP data will be eyed ahead of the key US Conference Board Consumer Confidence due later in the NA session.  

EUR/USD Technical levels to consider

“In the 4-hour chart, the pair found support around a mild-bullish 20 SMA, while technical indicators have bounced from their midlines, maintaining their upward slopes and near their daily highs. The 100 SMA has extended its decline, approaching the 38.2% retracement of the mentioned decline at 1.0900. The pair would need to advance beyond this last to gain bullish traction, quite unlikely in the current risk-averse scenario. Support levels: 1.0770 1.0725 1.0690. Resistance levels: 1.0860 1.0900 1.0930,” FXStreet’s Chief Analyst, Valeria Bednarik, noted.