Coronavirus resurgence a cause for concern for Euro bulls

 

  • EUR/USD’s uptrend at risk as coronavirus cases rise across the Eurozone. 
  • New lockdown restrictions may force the ECB to adopt a stronger dovish stance. 
  • Traders eye preliminary Eurozone PMI numbers along with virus figures. 

TopAsiaFX represented today’s news forecast.

A resurgence of cases coronavirus presents a risk to EUR / USD uptrend, which is already showing signs of exhaustion.

“The increase in cases of the virus in Europe should be a concern for all traders EUR / USD. The ECB does not fear level of the currency. But if new restrictions lead to a further slowdown, the central bank may have to change its position, “Kathy Lien of BK Asset Management noted in its daily analysis.

second wave

Last week, Europe reported 300,000 new infections – the largest weekly increase ever, including the first peak in the spring, according to the World Health Organization (WHO) Regional Director Hans Kluge.

France, Poland, the Netherlands, and Spain would have to deal with the second wave. Britain is already planning a new lockdown while Denmark countries Greece announced new restrictions Friday.

strict restrictions will be imposed if the situation deteriorates. This probably torpedo the nascent recovery of the coronavirus accident, forcing the European Central Bank (ECB) to add more stimulus.

So far, the ECB has been favorable to the status quo relatively less from the Federal Reserve. This is one of the big reasons for EUR / USD rally from 1.08 to 1.20, 3.5 months seen in the September 1 More importantly, the Fed recently tolerance to signal high inflation. In other words, the central bank would allow inflation to rise above the 2% target for some time before raising interest rates. The ECB, too, may feel compelled to follow suit if the coronavirus cases continue to rise.

Aside from the number of cases coronavirus, traders need to keep an eye on preliminary euro area PMI reports for September, scheduled for release Wednesday. “A slowdown in the service and manufacturing activity could be the main trigger inversion EUR / USD,” Link said.

Uptrend exhaustion

The back to back Doji candles seen on the weekly chart EUR / USD suggests the uptrend low below 1.08 seen in May is running out of steam.

The immediate bias is neutral, and the focus is now on top of the previous week and down 1.19 and 1.1737.

Acceptance below 1.1737 would confirm a bearish reversal doji or a change to bullish uptrend. Otherwise, 1.19 is the level to beat for the bulls. That said, more credible evidence of bullish recovery would be a daily close above the psychological barrier of 1.20. The pair trading near 1.1870 at time of the press, which represents a gain of 0.30% on the day.

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