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EUR/USD Daily Forecast – Euro Pulls Back to Test 200 DMA

The US dollar has seen volatile swings in March. The trade-weighted index (DXY) showed a monthly loss of 3.5% in the early month but then reversed abruptly higher to show a gain of nearly 5%. Last week, DXY fell under pressure once again and has now erased a bulk of the gain for March.

EUR/USD has a strong inverse correlation with DXY and has portrayed similar price behaviors. It briefly traded at lows not seen since April 2017 in the second half of March but has since returned to prior ranges.

Last week’s US unemployment claims report rose to a record high which was several multiples larger than prior peaks. The large increase in the number of people filing for jobless benefits provides a first realistic look at the impact the Coronavirus is having on the US economy.

The unemployment claims report usually does not have a significant impact on the exchange rate but was of particular importance as it is not lagging like several other economic reports traders usually keep a watchful eye on.

The markets will continue to focus on data that reflects the economy in March while data releases with reporting periods older than that will tend to be ignored as the outbreak escalated at the end of February.

Technical Analysis

The dollar has tended to move, with momentum, in both bullish and bearish directions this month. For this reason, the momentum behind the current rally is not instilling confidence that the recent leg of dollar weakness is here to stay.

There is a fairly strong correlation with equities. The dollar has shown strength in recent times when risk assets show weakness and vice versa. For this reason, EUR/USD traders should keep a close eye on equity indices.

EUR/USD sliced through the 200-day moving average without much effort last week and this indicator will be an import line in the sand in the early week.

If the pair fails to hold above it, the next area of interest to the downside falls at the psychological 1.1000 handle. While above the indicator, the next resistance level is found at 1.1225.

Bottom Line

  • The dollar index has shown volatile swings in March but is on pace to close the month of March nearly unchanged.

  • The 200-day moving average in EUR/USD offers a near-term line in the sand for a directional bias.

This article was originally posted on FX Empire

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