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EUR/USD has been under pressure amid the increase in European coronavirus cases. Monday’s 4-hour chart is showing oversold conditions, pointing to a bounce, which may serve as a selling opportunity being that sky-high tension toward the US elections is set to boost the US dollar, FXStreet’s Analyst Yohay Elam Yohay Elam reports.

Key quotes

“COVID-19 cases, deaths, and hospitalizations continue rising in the old continent and dampen the economic forecasts. Governments across Europe are struggling with fatigue from measures as the second round of restrictions weighs on consumer sentiment. The industrial sector is still holding up, and that will likely be confirmed by Markit’s Manufacturing Purchasing Managers’ Indexes for October.” 

“Christine Lagarde, President of the European Central Bank, signaled additional stimulus is coming in December in last week’s rate decision. She also warned that Europe may suffer a ‘double-dip’ recession – a return to contraction in the fourth quarter after enjoying a bounce in the three months ending in September. Investors seem to focus on the downbeat prospects for the present and future rather than the rapid recovery.” 

“Covid statistics are also on the rise in the US and are the main topic on the agenda in the elections. Quick results are likely from Florida, the perennial swing state while counting in Pennsylvania could last for longer. Markets fear that a protracted process could result in a contested election and a constitutional crisis. Biden has a commanding lead over Trump in national opinion polls, while races in those closely-fought states are closer. The safe-haven dollar is benefiting from uncertainty ahead of the first results, due late on Tuesday.” 

“The Relative Strength Index on the 4-hour chart is below 30 – indicating oversold conditions and a potential for a bounce. The previous such dip triggered a temporary surge before the euro/dollar resumed its falls. Will it happen again?” 

“Support awaits at 1.1625, which was a low point in mid-September. It is followed by that month’s trough of 1.1610, and then by 1.1550. Resistance is at 1.1650, which served as support last week, followed by 1.1695, a temporary cap.”