EUR/USD – Uncertain Levels

Essential Insights:

EUR/USD is testing crucial monthly support that will determine the likelihood of its next short-term rally.

Technicals:

Prices are currently testing a key monthly support zone at around 1.0900. If prices are able to hold here, we could see 1.1200 being met soon after. A break below the zone could see the previous daily low at 1.0647 being revisited.

On the 4-hour timeframe prices are consolidating, with the 1.0900 acting as strong support and the 8-day EMA acting as resistance. It is worth noting that the previous H4 candle closed as a bearish engulfing, a rejection from the 8-day EMA.

From the 4-hour chart above it can be seen that we have broken, retested and then rejected from the ascending trendline. There is definitely scope to revisit the previous daily low, however the monthly support zone needs to be broken first.

Fundamentals:

Today we saw the release of key EU (YoY) and (MoM) producer prices. Both of which were significantly below forecasts with YoY reporting as -1.3 vs the forecast of -0.7 and MoM at -0.6 vs forecasts of -0.2.

These producer prices are an early indication of inflationary pressures, because it is likely this producer price change will have to be absorbed by consumers.

These producer prices have mostly been influenced by a significant fall in energy markets, catalysed by the Russia vs Saudi Arabia oil price battle for market share.

Elsewhere we have the soon to be released key U.S. initial jobless claims, forecasted to rise from 3.283 million to 3.500 million. In the current environment, these continued claims increases seem inevitable considering the extent of business closures and staff lay offs.

The U.S. has now nearly doubled China’s reported COVID-19 deaths. U.S. deaths now total over 6,000 while China’s total deaths are around 3,300. In a recent press conference, Trump indicated how the next two weeks will be especially tough for the economy as COVID-19 cases and deaths are expected to skyrocket.

It is therefore expected that we will see further weakness in the U.S. economy’s key data metrics. This places EUR/USD in a tricky spot with both economies reporting significant new impacts to their respective economies by the day.