The EUR/USD pair is trading above 1.12 as ECB President Lagarde warns of a seriously complicated recovery ahead. Worries about the surge in United States COVID-19 cases and the Fed’s warnings about the banks’ resilience are weighing on the market sentiment.
Based on the historic trend of the four-hour chart to early May, it is clear that the long-term uptrend support line is now converging on the current price. A mild uptrend that dates back to late May is also providing adequate support for the pair. Will the convergence of these two lines prevent EUR/USD from plunging?
For now, momentum remains to the downside while this week’s slide from the highs sent the pair below the 100 and 200 Simple Moving Averages. Nevertheless, EUR/USD is remaining above the 200 SMA. The nearest support awaits around 1.1190, followed by June 19’s low of 1.1165. The next line that traders should watch is 1.1080 that mainly acted as a stepping stone on the way up in early June.
Resistance has formed at 1.1250, a swing high from the past week, followed by 1.1295, another such line that formed several days earlier. The next resistance is located at 1.1350, which held the EUR/USD pair down twice this June.
External Factors Affecting EUR/USD
The most popular currency pair is struggling to recover but it still holds its ground. EUR/USD is still resilient despite the late rally in the US stocks on June 25 as investors ignored a record number of COVID-19 cases in America. Investors also turned a blind eye to a warning issued by the Federal Reserve. The haven dollar experienced intensive pressure; will that continue?
Texas Governor Greg Abbott suspended the reopening of the state amidst a rapid surge in COVID-19 hospitalizations that have now exerted immense pressure on health systems. The pandemic cases are rising in California, Florida, and most of the other US states. Additionally, the Center for Disease Control highlighted that the actual number of infections in the US is around 23 million which is ten times the current count.
But, President Trump said that the country will not impose new shutdowns and the economy will explode forward. The Federal Reserve seems not to share the same optimism with the president. The Fed ordered banks to refrain from increasing their dividends for Q2 2020 and avoid buyouts in Q3 2020. It wants the commercial banks to have adequate funds to cover themselves in case of a downturn.
Stocks rejuvenated and bounced. The same Federal Reserve offers extensive support to markets and maybe investors were encouraged by some of the data points provided. Durable Goods Orders increased by 15.8% in May, beating the expectations and showing massive rebound after April’s plunge. The jobless claims sent mixed signals. Initial claims remained high around 1.5 million and continuing applications sliding below 20 million.
These June 26 figures are of great interest. Personal Spending maybe dropped, surging in May after tumbling in April. On the flip side, Personal Income that spiked by at least 10% in April might have dropped in May.
Christine Lagarde Speaks
The European Central Bank (ECB) President, Christine Lagarde, delivers a speech on Friday and may comment on the current economic situation that may call for a potential further stimulus. The ECB defied the German Constitutional Court’s partial rejection of the bank’s bond-buying campaign; and expanded its purchases earlier in June.
Lagarde might reiterate the Frankfurt-based institution’s commitment. She might call on politicians to play their role. The President of the European Commission, Ursula von der Leyen; encouraged leaders to agree on her proposed European Union Fund before the summer holidays. This proposed EU Fund is an ambitious plan that comprises of €500 billion in mutually funded grants. But disagreements have slowed the process.
Coronavirus cases and the fear of worse figures in the weekend may trigger a risk-off mood that may favor the dollar. Will EUR/USD remain resilient?