The easing of lockdown measures across Europe has helped to increase confidence that the Eurozone economy will rebound, helping to keep the single currency supported. However, at the same time, demand for haven dollar has kept the gains in check for the EUR/USD.
The EUR/USD was trading a touch higher on the day after closing lower over the past couple of days, as the dollar eased back with a rebounding stock markets and ahead of US data in the afternoon. The EUR/USD was clinging onto its weekly gains but looked vulnerable and remains to be seen where it will close the day, having been stuck in an ugly-looking range over the past few weeks. Investors were wating for the release of US personal spending and income, as well as fresh data on Covid-19, later on in the day.
The easing of lockdown measures across Europe has helped to increase confidence that the Eurozone economy will rebound, helping to keep the single currency supported. However, at the same time, demand for haven dollar has kept the gains in check for the EUR/USD. The virus situation in the US appears to be getting out of control and this has kept some haven demand flowing into the US dollar, even if the persistence of Covid-19 here could mean a weaker recovery for the world’s largest economy. That said, the US government has continually denied there will be a repeat of the widespread lockdowns that battered the economy in March. But with cases increasing, this could mean further easing of lockdown measures may take longer and hurt consumer confidence. So, one way or another, it will impact economic recovery.
From a technical point of view, the EUR/USD is currently range-bound. Within its ranges, the world’s most heavily-traded currency pair has been making interim lower lows and lower highs, thus creating a short-term bearish channel or a slightly longer-term bull flag, depending on your time frame:
Source: TradingView and ThinkMarkets
The pivotal level to watch is around 1.1250. For as long as this hold as resistance, I would be looking for weakness given the somewhat bearish price action over the past couple of weeks. However, in the event price breaks through 1.250 then I would wait until it also clears the resistance trend of the channel before turning bullish on the EUR/USD again.
In terms of support, 1.1150 is the next key level to watch on the downside, since this was a weekly resistance level and converges with the 38.2% Fibonacci retracement. Should the euro get here and stays lower, then the next downside target is at around 1.1000-1.1030, where the 200-day average meets prior resistance, and the 61.8% Fibonacci retracement.