EUR/USD Forecast: Five reasons to favor the downside amid coronavirus, potentially devastating data

Markets have been finding their feet – but EUR/USD remains pressured and for good reasons. The picture remains dark for the currency pair.

1) Eurozone coronavirus picture remains worrying

COVID-19 cases and deaths continue rising in the old continent, the epicenter of the disease. France and Spain both announced record numbers of mortalities on Wednesday, above 500 and near 900 respectively.

While the curve is flatter in Italy and Germany, both countries have announced that they will extend their lockdowns beyond Easter. When restrictions are lifted, it will happen only gradually.

2) No coronabonds for now

The eurozone remains split between the camp demanding to mutualize the debt and show solidarity, and the one opposing it, led by Germany. The European Commission in Brussels is attempting to find a compromise that will likely fall short of what France, Italy, and Spain demand.

The European Central Bank’s massive Quantitative Easing scheme has provided some calm, but it is far from sufficient. The potential political crisis is weighing on the common currency.

See Coronabonds: Turning a health crisis with a political one? EUR/USD parity in sight again

3) US jobless claims could be terrible

The damage is spreading at a rapid clip and monthly figures such as ADP’s private-sector employment figures and the ISM Manufacturing Purchasing Managers’ Index – usually leading figures – are lagging. However, weekly jobless claims have been mainly keeping up with the spread of the virus and the economic fallout.

After skyrocketing to 3.283 million in the week ending on March 21, Thursday’s report for the week that ended on March 28could be even higher. Goldman Sachs foresees 5.25 million claims. Devastating figures could be positive for the safe-haven US dollar.

See Initial Jobless Claims Preview: The tidal wave rolls on

4) No new stimulus

One of the factors weighing on the greenback last week was the massive fiscal stimulus plan -- $2.2 trillion – approved by Washington. That may be insufficient with mass unemployment and a slow recovery. While Democrats are already mulling a new package,

Republicans are not enthusiastic about President Donald Trump’s calls for infrastructure spending. If they change their mind, the dollar could fall – but until then, the market mood could stay downbeat.

5) Concerns about Chinese coronavirus data

China’s Gross Domestic Gross Product statistics have been in doubt for years, and also the initial COVID-19 reports were met with skepticism. These concerns have been growing after Bloomberg reported that US intelligence agencies suspect that confirmed cases and deaths are far higher.

These reports have implications for the rest of the world, as models estimating the spread and recovery from the outbreak rely on data from Beijing. The news from China implies a worse trajectory and protracted economic suffering – weighing on sentiment and benefiting the US dollar.

EUR/USD Technical Analysis

The four-hour chart is showing that EUR/USD is setting lower lows – forming a downtrend. The currency pair has dropped below the 100 and 200 Simple Moving Averages and is fighting to hold onto the 50 SMA. Momentum remains to the downside.

All in all, bears are in control.

Support awaits at 1.09, a round number that provided support on Wednesday. It is followed by 1.0840, a temporary cap from last week. The next lines to watch are 1.0750 and 1.0640.

Resistance is at 1.0970, which is the daily high, and it is followed by 1.10, where the 200 SMA hits the price. 1.1050, 1.1090, and 1.1150 were all high points in recent days and serve as resistance.

More: Learning to love volatility, how to choose currency pairs and more – interview with Nenad Kerkez