- EUR/USD is trading close to 1.20, fueled by several encouraging factors.
- New German forecasts and the ISM Manufacturing PMI are awaited.
- Tuesday's four-hour chart is pointing to mildly overbought conditions, while the daily chart shows the next levels to watch.
Who said September is a bad month in markets? The back-to-school month has kicked off with an extension of previous trends – higher stocks and a fall in the dollar.
The main upside driver is the Federal Reserve. The world's most powerful central bank announced it would prioritize reaching full employment at the expense of higher inflation – implying zero interest rates for even longer than previously thought. The Fed's new policy framework has no immediate policy implications but certainly underpins stocks and weighs on the dollar.
Federal Reserve Vice-Chair Richard Clarida – one of the architects of the new policy – clarified that the Fed is currently not considering new measures such as Yield Curve Control or negative borrowing costs in the near future. Staying on the sidelines makes sense after the immense stimulus enacted by the bank earlier this year and the upcoming elections.
However, politics could push the Fed into more action. Democrats and Republicans remain entrenched in their positions about the next fiscal stimulus bill. Some of the coronavirus-related emergency measures lapsed at the end of July and are slowing the recovery. If lawmakers continue dithering, the Fed may step in with more measures.
The ISM Manufacturing Purchasing Managers' Index for August will shed some light on how the world's largest economy is doing – and serve as the first hint toward Friday's jobs report. The headline is forecast to point to growth while the employment component is likely to contract once again.
More Markets are Fed-dependent as ever, reaction to elections could surprise – Interview with Lior Cohen
EUR/USD's rise is also driven by factors outside America. China's independent Caixin Manufacturing PMI beat estimates with 53.1 points in August, showing that the Asian giant continues recovering from the COVID-19 fallout. AstraZeneca, a British pharmaceutical firm, announced the beginning of a broad and 50,000-strong test for its coronavirus vaccine candidate.
Back in the old continent, manufacturing PMIs are set to show moderate growth in August, with the exception of France, where the initial read came out at 49, reflecting contraction. COVID-19 cases are rising quickly in the eurozone's second-largest economy. Concerns are rising about the fourth-largest, Spain.
As the chart shows, cases are rising in Europe and declining in the US:
Source: FT
In the meantime, Europe's locomotive Germany is powering forward. Economy Minister Peter Altmaier is set to publish an upgraded growth forecast. Reports of the expected announcement are already underpinning the euro.
Overall, the wind is blowing against the dollar and mostly in favor of the euro. Concerns about European COVID-19 cases – brewing in the background – could change that bias, but that may take time.
EUR/USD Technical Analysis
Euro/dollar is benefiting from upside momentum on the four-hour chart and is trading above the 50, 100, and 200 Simple Moving Averages. On the other hand, the Relative Strength Index is around 70 – indicating overbought conditions.
Support is at 1.1965, the mid-August peak, and it is followed by 1.1930, a separator of ranges. Further down, 1.1880 provided some support and a critical line to watch is 1.1850 – which was a stubborn cap and also where the 50 SMA hits the price.
Clear resistance is at 1.20 – a psychologically level that also held EUR/USD back in 2018. To look for higher levels, the daily chart comes handy.
The next level to watch is 1.2090, which capped the currency pair in late 2017. It is followed by 1.2160, a support line from early 2018. The next level to watch is 1.2210, a support line from later in 2018 when EUR/USD traded at higher ground.
The RSI on the daily chart is below 70, allowing for more rises.
More Markets are Fed-dependent as ever, reaction to elections could surprise – Interview with Lior Cohen
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
Gold refreshes all-time highs above $3,000 on escalating geopolitical tensions
Gold price is reneweing record highs beyond $3,000 early Tuesday on intensifying geopolitical Middle East tensions. Israel resumes military operations against Hamas in Gaza after the group rejected US proposals for extending ceasefire. Further US-Iran tensions add to the latest leg up in the safe-haven Gold.
AUD/USD trades with caution below 0.6400 amid MiIddle East tensions
AUD/USD has paused its upsurge, trading with caution in Tuesday's Asian trading. Traders prefer to stay on the sidelines amid intensifying geopolitical risks in the Middle East, reducing the appeal of the higher-yielding Aussie. Meanwhile, the US Dollar finds its feet due to risk aversion.
USD/JPY sits at two-week high near 149.50 as US Dollar finds demand
USD/JPY sits at two-week high near 149.50 in the Asian session on Tuesday as renewed Middle East geopolitical jitters revive the safe-haven demand for the US Dollar. However, further upside appears elusive amid divergent BoJ-Fed expectations and rising trade tensions.
Solana price faces 50-day resistance as SOL futures debut on CME Group with $5M volume on fifth anniversary
Solana stagnated around the $128 mark on Monday despite multiple bullish catalysts. The recent SOL unlocks by Alameda Research, ahead of FTX creditor repayments, have created a persistent bearish overhang since early March.
Five Fundamentals for the week: Fed leads central bank parade as uncertainty remains extreme Premium
Central bank bonanza – perhaps its is not as exciting as comments from the White House, but central banks still have sway. They have a chance to share insights about the impact of tariffs, especially when they come from the world's most powerful central bank, the Fed.
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.