EUR/USD Daily Forecast – US Dollar at Critical Inflection Point

EUR/USD has rallied for five consecutive days and has gained over 3% during that time. The dollar has been broadly weaker at the same time with the US dollar index (DXY) falling back below the psychological 100.00 level on Thursday.

Yesterday’s US unemployment claims report showed a record 3.28 million people filing for benefits, well above the analyst estimate of about 1.6 million.

The dollar continued to decline yesterday although the combination of a rise in the US stock markets and a fall in the dollar suggests other factors outside the weak job claims were driving the move in the greenback.

Fed Chair Powell held a rare interview with CNBC where he reaffirmed that the Fed will continue to provide support to the economy and that the central bank is “not going to run out of ammunition” which seemed to be underpinning stock prices.

One of the predominant themes in the market as of late has been an inverse correlation between the dollar and equities. The common narrative being that investors had flocked to the greenback as they fled from most other investments up until the recent bullish turn in the equity markets. An argument could be made that the opposite is now happening, which has put pressure on the dollar as of late.

At the same time, the dollar index is now trading at an important support level while EUR/USD tested resistance earlier today and has eased back since.

Technical Analysis

EURUSD Daily Chart

Support in DXY is seen at 99.34 which previously served to hold the index lower in September last year and then once again in February, on a weekly close basis.

While DXY is probing support, EUR/USD is attempting to push back below the 1.1000 handle after testing resistance in the early day. Resistance for the pair comes from the 200-day moving average, which currently resides at 1.1081. Further, there is a horizontal level in play at 1.1075.

Where the dollar index closes today will be important for EUR/USD considering it is the last trading day for the week. If DXY fails to hold above support on a weekly close basis, it could signal further losses for next week.

Where equities go from here will also be important for the EUR/USD pair, if the correlation holds up. Considering that important technical areas are being tested in both EUR/USD and DXY, this looks to be a high probability area where the pair could reverse lower, inline with the predominant broader bearish trend.

Bottom Line

  • The US dollar and EUR/USD have both reached notable technical areas that could trigger a reversal from the trend over the past five sessions.
  • Volatility may rise as traders typically look to adjust positions going into the end of the month.