EUR/USD: Impending “golden cross” may draw bids for the single currency

EUR/USD regains pose despite risk-off tone in the US stock futures.
Daily chart shows an impending golden crossover, a long-term bull market indicator.
Impending bullish technical developments could bode well for the common currency.

Omkar Godbole FXStreet Contributor

EUR/USD is reporting moderate gains at press time and could rise further as a widely-followed technical indicator is about to turn bullish for the first time since December 2019.

The pair is currently trading near 1.1250, representing a 0.10% gain on the day, having put in a low of 1.1225 during the Asian trading hours. The pair has managed to add 25 pips despite the risk-off tone in the financial markets.

The S&P 500 futures are down 0.6% on the day at press time, as recovery concerns fueled by rising infection numbers in the US and China are overshadowing optimism over policy stimulus.

Golden cross

The pair's 50-day simple moving average (SMA) has already crossed above the 100-day SMA and looks set to rise above the 200-day SMA in the next couple of days. The resulting golden crossover, the bull cross of 50- and 200-day SMAs, would be the first in six months.

As per the technical analysis theory, the golden cross is an indicator of the long-term bull market. As such, technical traders may buy euros in the run-up to confirmation of the crossover.

Traders, however, should note that the golden cross is based on moving averages (backward-looking data) and tends to lag prices. Some observers also consider it as a contrary indicator, which traps buyers on the wrong side of the market.

Also, coronavirus fears and geopolitical tensions could play spoilsport. The dollar will likely draw bids, pushing the EUR/USD pair lower if the tensions between the US and China over the Uighur bill escalate.

The Eurozone data docket is light on Thursday with just European Union's monthly Economic Bulletin due for release. Across the pond, the focus will be on the US weekly jobless claims.

Technical levels

1. R3 1.1377
2. R2 1.1336
3. R1 1.129
PP 1.1248
1. S1 1.1203
2. S2 1.1161
3. S3 1.1116

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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