- EUR/USD has been extending its gains to above 1.12 amid opening optimism and stimulus hopes.
- Speculation about the ECB and top-tier US figures are eyed.
- Thursday's four-hour chart is pointing to overbought conditions.
Is the only way up? Perhaps, yet the rapid pace of gains suggests a temporary correction may be on the cards.
One potential trigger for such a correction may come from fraught talks between Germany's coalition partners. Chancellor Angela Merkel's center-right CDU party has so far failed to agree on the details of a €100 billion stimulus package with her center-left SPD. If another meeting – perhaps shorter than the nine-hour previous one – is also inconclusive – the common currency could fall. However, previous prolonged negotiations eventually ended in an agreement.
On the other hand, investors are growingly bullish on stimulus from the European Central Bank. The Frankfurt-based institution is forecast to expand its Pandemic Emergency Purchase Program (PEPP) which currently stands at €750 billion. Estimates from an additional €250 billion to €500 billion.
See ECB Preview: Lagarde's lavishness to set the tone for EUR/USD, three scenarios and what to watch
Printing more money tended to weaken the underlying currency, but that is not the case in the coronavirus era – additional funds mean a quicker economic recovery, especially for the hardest-hit countries such as Italy and Spain.
And in both these large southern nations, disease-related developments have been encouraging. Rome is set to further remove restrictions, including the obligation for incoming visitors to quarantine. Spain reported two consecutive days without COVID-19 mortalities, albeit amid discrepancies between central and regional authorities.
Germany's Reproduction indicator dropped below 1 after temporarily moving above this level and cafes in Paris are reopening. Overall, coronavirus seems to be coming under control, supporting the common currency.
Markit's final Services Purchasing Managers' Indexes for May will likely confirm the dire, yet improving conditions. Investors are already eyeing June's figure.
US unrest to result in more stimulus?
Protests against racial discrimination continued for another day in America, yet with a calmer tone. While demonstrators violated curfews in several cases, the marches were mostly peaceful, and also President Donald Trump toned down his rhetoric, retreating from threats to bring in the military.
The unrest has pushed lawmakers on Capitol Hill to accelerate talks for another relief package – probably below $3 trillion that Democrats pushed for, but potentially above the $1 trillion mark.
The mass gatherings in demonstrations and other reopenings that have come amid political pressure and without substantial falls in cases suggest the US is still at risk of experiencing a second wave. However, that may take time to materialize and investors remain optimistic about the return to normal.
Hope and the Federal Reserve's stimulus are boosting stocks and weighing on the safe-haven dollar.
Is the world's largest economy recovering? Two significant releases await investors. ADP's private-sector jobs report is forecast to show a loss of nine million jobs in May – a horrible outcome, but an improvement in comparison to April.
ADP Preview: Half as bad as April is still terrible but markets have moved on
Later on, the ISM Non-Manufacturing PMI also carries expectations for improvement, yet it will likely remain below 50 – representing concentration. The employment component serves as a hint toward Friday's Non-Farm Payrolls.
ISM Non-Manufacturing PMI Preview: If the bottom is in, is this higher?
Overall, there is room for further gains, albeit with a temporary retreat.
EUR/USD Technical Analysis
The Relative Strength Index on the four-hour chart is above 70 – indicating overbought conditions and suggesting a drop. Nevertheless, EUR/USD broke above the uptrend channel and trades above the 50, 100, and 200 Simple Moving Averages, suggesting a broader uptrend.
Beyond the daily high of 1.1215, the next cap is at 1.1240, a swing high from March. It if followed only by 1.1360, a stepping stone on the way down back then, and then by 1.1410.
Some support is at 1.1165, the daily low, followed closely by 1.1150, a swing high in March. The next lines to watch are 1.1070 and 1.1035.
See Fibonacci lines are golden, a gold trading idea, and more – Interview with Chris Svorcik
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 defends bid below 1.1050 amid cautious markets](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/money-euro-and-dollar-banknotes-17371247_XtraSmall.jpg)
EUR/USD defends bid below 1.1050 amid cautious markets
EUR/USD is defending minor bids below 1.1050 in the European session on Tuesday. Reduced bets for a 50 bps Fed rate cut support the US Dollar amid a cautious mood while the Euro struggles to gain traction on dovish ECB expectations.
![GBP/USD consolidates gains below 1.3100 post-UK employment data](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-689067954_XtraSmall.jpg)
GBP/USD consolidates gains below 1.3100 post-UK employment data
GBP/USD consolidates latest gains below 1.3100 in European trading on Tuesday. The UK ILO Unemployment Rate edged lower to 4.1% in the three months to July, as forecast, and lifted the Pound Sterling but the sustained US Dollar strength checks the GBP/USD upside.
![Gold trades around $2,500 as 50 bps rate cut bets dwindle](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/safe-investment-gm147322399-17568598_XtraSmall.jpg)
Gold trades around $2,500 as 50 bps rate cut bets dwindle
Gold is exchanging hands at around the $2,500 mark on Tuesday, sticking within its familiar range of the last few weeks as traders assess the outlook for monetary policy and the future path of interest rates in the US, a key performance indicator for Gold.
![How the Fed's rate cuts and weakening job market impact stock trading in 2024](https://editorial.fxstreet.com/images/Macroeconomics/CentralBanks/FED/the-federal-reserve-building-in-washington-dc-usa-67160227_XtraSmall.jpg)
How the Fed's rate cuts and weakening job market impact stock trading in 2024
For the past two years, equity traders have been closely monitoring inflation reports, particularly the Consumer Price Index (CPI), as a key indicator of the Federal Reserve’s approach to managing the economy.
![Dogecoin leads meme coin recovery following positive investor sentiment](https://editorial.fxstreet.com/images/Markets/Currencies/Cryptocurrencies/Dogecoin/Doge_Coin_31_02_XtraSmall.jpg)
Dogecoin leads meme coin recovery following positive investor sentiment
Dogecoin is up more than 8% on Monday, as it's leading the entire meme coin sector on a rebound. The top meme coin could see a massive rally if it completes a key move within a falling wedge.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.