- EUR/USD is on the back foot amid rising COVID-19 cases in Europe.
- Growing doubts about US fiscal stimulus may further boost the safe-haven dollar.
- US retail sales may disappoint again and add to the risk-off mood.
- Euro/dollar is entering oversold conditions according to Friday's four-hour chart.
When Germany – one of the world's leaders on COVID-19 testing – is struggling with tracing, there is a problem all over the old continent. The surge in coronavirus cases one of the reasons weighing on EUR/USD, and technicals may only provide a temporary, "dead cat bounce" move.
Here are the reasons to favor shorting euro/dollar:
1) Infections surge, governments act
After suffering either local or moderate increases in COVID-19 cases, recent days have seen surges. France is imposing a nighttime curfew in Paris and other cities, Germany is struggling with contact tracing and Barcelona's restaurants are closing. The caseload is even worse in Belgium and the Netherlands.
Source: FT
Governments are trying to avoid national lockdowns and limitations to movements, but the current restrictions – and fears of new ones – already weigh on economic activity and hurt the common currency. The latest comes from Italy, where the government is also considering a curfew.
2) US stimulus talks are going nowhere
President Donald Trump tweeted "go big" on a relief package and wants to offer more than $1.8 trillion. Will he reach House Speaker Nancy Pelosi's $2.2 trillion? That may the wrong question, as Trump's fellow Republicans want only a skinny $500 billion deal. Senate Majority leader Mitch McConnell said a small package is enough and seems focused on the Supreme Court.
Without stimulus, markets are falling and the safe-haven dollar is in demand.
McConnell may also be counting out Trump – who continues trailing rival Joe Biden in national and state polls. The RealClearPolitics shows a 9.4% lead for the former VP, FiveThirtyEight is showing an 87% for a Biden victory, and The Economist is pointing to 91%.
Biden and Trump appeared in separate town-hall events in a bid to convince undecided voters – fewer in 2020 than in 2016. Biden's lead is larger than Clinton's at this point in the race:
Source: RCP
For markets, the bigger question becomes the Senate. If Dems win the upper house, they could push through a quick and generous stimulus bill. The battle is closer there and speculation about a "blue wave" – a clean sweep for the opposition – remain rife.
3) Another data disappointment?
After several quiet days on the economic calendar, the Retail Sales report for September is set to rock markets. Consumption is central to the world's largest economy and the lapse of several government aid programs in late July already took its toll in August.
Expectations for the upcoming release are already moderate, but have they gone far enough? Another shortfall could further fuel demand for the safe-haven dollar.
See US Retail Sales September Preview: It's about employment
Later in the day, the University of Michigan's preliminary Consumer Sentiment Index is set to show a stall in the recovery. The latest jobless claims figures jumped to 898,000, worse than expected.
See US Michigan Consumer Sentiment October Preview: It's really an employment survey
Overall, the deck is stacked against EUR/USD.
EUR/USD Technical Analysis
The Relative Strength Index on the four-hour chart is flirting with the 30 level – nearing oversold conditions. That implies a potential bounce – yet it may only be limited. Momentum remains to the downside and EUR/USD is trading below the 50, 100, and 200 Simple Moving Averages.
All in all, the picture is bearish.
Critical support awaits at 1.1685, which provided support on Thursday and also in late September. Further down, last month's lows of 1.1625 and 1.1610 await the currency pair.
Some resistance is at 1.1720, which separated ranges earlier this week, followed by 1.1770, a swing high, and 1.1810.
More: Big move coming in EUR/USD? Fiscal stimulus and coronavirus are the keys
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD turns lower toward 1.1300 as US Dollar demand picks up
EUR/USD has come under renewed selling pressure and heads back toward 1.1300 n Monday’s European session. The upbeat market mood and a fresh US Dollar uptick undermines the pair amid a quiet start to a critical week ahead.
GBP/USD drops back below 1.3300 on US Dollar strength
GBP/USD returns to the red below 1.3300 in the European trading hours on Monday. Sustained US Dollar strength and easing trade tensions weigh negatively on the pair. Meanwhile, the technical outlook on the daily chart suggests a weakening bullish trend.
Gold price remains depressed below $3,300 amid signs of easing US-China trade tensions
Gold price maintains its offered tone through the Asian session on Monday and currently trades below the $3,300 round-figure mark, down 0.75% for the day. Despite mixed signals from the US and China, investors remain hopeful over the potential de-escalation of tensions between the world's two largest economies.
Bitcoin and Ethereum stabilize while Ripple shows strength
Bitcoin and Ethereum prices are stabilizing at around $93,500 and $1,770 at the time of writing on Monday, following a rally of over 10% and 12% the previous week. Ripple price also rallied 8.3% and closed above its key resistance level last week, indicating an uptrend ahead.
Week ahead: US GDP, inflation and jobs in focus amid tariff mess – BoJ meets
Barrage of US data to shed light on US economy as tariff war heats up. GDP, PCE inflation and nonfarm payrolls reports to headline the week. Bank of Japan to hold rates but may downgrade growth outlook. Eurozone and Australian CPI also on the agenda, Canadians go to the polls.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.