- EUR/USD has been edging lower amid a mix of hope and fear on several fronts.
- An increase in US coronavirus cases and Fed Chair Powell’s caution may tilt the pair lower.
- Wednesday’s four-hour chart is painting a mixed picture.
Lower highs and higher lows – the narrowing wedge in euro/dollar triggers the question: where next? The world’s most popular currency pair is pushed and pulled by several factors.
US Retail Sales smashed all expectations with a surge of 17.7% in May – more than double the estimates and painting a V-shape when only observing consumption data for April and May. America goes on a shopping spree that encourages the whole world and weighs on the safe-haven dollar.
Coronavirus infections and cases continue falling in Europe, and preparations to resume additional events are on the rise. Flights from Germany to Spain’s Balearic islands are back, just ahead of the summer.
Dexamethasone – a cheap and commonly available steroid has proved effective in reducing coronavirus deaths in a wide, randomized controlled trial conducted by the University of Oxford. A drop of up to a third in mortalities among severely sick patients is encouraging for the whole world.
COVID-19 deaths are dropping in the US, with the greater New York Area leading the way. But that is where America’s health optimism ends.
Hospitalizations and infections are rising at an accelerating pace in the US Sun Belt. Apart from large Florida and Texas, hot Arizona is also struggling. Ron DeSantis, Florida’s Governor and a fan of the president, rejected calls to reimpose restrictions.
Moreover, cases have increased in Oklahoma, where President Donald Trump is set to hold a 20,000-strong indoor rally on Saturday. Local authorities have pleaded him to cancel or change the nature of the event.
Robert Kaplan, the President of the Dallas branch of the Federal Reserve, stressed that the next steps of the economic recovery depend on successfully executing a health strategy, rather than more fiscal and monetary stimulus.
His boss, Fed Chairman Jerome Powell, also said that a full recovery depends on curbing the disease and refused to get carried away by optimism coming from consumption data. Powell continues testifying today and will likely repeat the same messages – potentially dampening the mood and keeping the safe-haven dollar bid.
The dollar may find more demand as geopolitical tensions remain elevated. China – which is dealing with a severe outbreak in Beijing, causing it to restrict transport – is clashing with India. A brawl between soldiers at the remote Himalayan Galwan valley has taken the lives of dozens.
Will the nuclear-armed countries de-escalate tensions? Efforts are underway, but a breakthrough is still not on the cards.
Tensions on the Korean peninsula seem far from calming down. A day after North Korea blew up the liaison office in Kaesong, it is reportedly sending troops to the Demilitarized Zone (DMZ) separating the two Koreas.
Seoul said it would respond with force to any additional military action. Pyongyang expressed anger that activists distributed anti-North Korea propaganda without intervention from the South. Also here, the possession of nuclear arms by the North and by the US-South Korea’s ally, means the world is watching.
Overall, there are more reasons to worry than cheer, potentially weighing on EUR/USD.
EUR/USD Technical Analysis
Momentum on the four-hour chart is now balanced. While the currency pair failed to conquer the 50 Simple Moving Average, it trades above the 100 and 200 SMAs. Setting higher lows and lower highs suggest a significant move is brewing, yet the charts do not suggest a clear direction.
Resistance awaits at 1.1350, the weekly high, followed by 1.1425, the three-month peak recorded a week ago. Further up, 1.1495 is the next level to watch.
Support awaits at 1.1270, a support line from mid-June, with more significant support awaiting at 1.1210, Friday’s low. Next, 1.1150 and 1.1080 await the currency pair.Get the 5 most predictable currency pairs