Today we shall take a look at the EUR/USD currency pair. Over the past two weeks, this pair has demonstrated a very mixed and confusing trend, with slight ups and downs within a narrow channel. The rate currently sits at the lower end of that channel around 1.19; last week it rebounded from this level rather than go down, but it remains to be seen what the pair will do now.
The European single currency is facing a lot of downside risk at the moment. First off, the number of coronavirus infections is on the rise in the EU again, indicating that more lockdowns might be necessary to contain the virus, inflicting further damage to the bloc’s economy. This is made even worse by the slow pace at which Europe is handling vaccinations, lagging behind the UK and the US significantly, and the ongoing safety concerns over AstraZeneca’s vaccine are complicating matters further. The difference between how Europe and the United States are doing at the moment is also reflected in bond yields, where US Treasuries far outweigh the German bund. Overall, this makes the euro significantly weaker than the dollar and opens up the EUR/USD to a further downward retreat. Nevertheless, the question remains whether all of this pessimism about the euro is already priced in, in which case the euro will be unable to sink any lower and will rebound from the strong support again, perhaps in repetition of the events from last week.
The situation with the US dollar is much clearer. Vaccinations in the United States are going great, the government has abundant stimulus to work with, and daily infections have dropped below 50,000, which is impressive compared to the January peak of 308K. The country’s fundamental reports have shown signs of economic recovery, despite a few hiccups here and there, which have prompted the Federal Reserve to keep the course of fiscal stimulus steady. US Treasury bond yields are arguably the most attractive in their asset class, underpinning dollar strength. This all translates into a strong dollar for the time being.
In terms of the daily chart, today we have a pivot point for the pair located at 1.1882, with the price currently trading above it. The daily support levels lie at 1.1874 and 1.1863. The daily resistances are located at 1.1893 (overcome) and 1.1901. The indicators of technical analysis agree in strongly recommending a sell position today.
