EUR/USD can’t hold above 1.0500, blame it on risk aversion and CHF

The EUR/USD is back under 1.0500 as the US dollar strengthened amid a deterioration in market sentiment. At the same time, a sharp slide in EUR/CHF also weighed on the euro.

Wall Street and EUR/CHF on free fall

Leading stock indices in Wall Street are falling by more than 2% and have erased the gains of the previous two trading days. Pessimism about the global economic outlook is back on the table and also affected by more hawkish rhetoric from Federal Reserve and European Central Bank officials.

As risk-off set in, the demand for Treasuries emerged. As a consequence, the US 10-year yield fell to 2.90% and the 30-year to 3.11%. The decline in yields so far prevents a larger appreciation of the US dollar.

The context boosted the Swiss franc and the yen that are the best performers on Wednesday. The EUR/CHF lost more than a hundred pips during the last two hours, falling from 1.0480 to 1.0364 and hitting the euro. Today, Swiss National Bank Chairman Thomas Jordan repeated that they are "ready to intervene in currency markets when necessary."

Is the recovery over?

At the time of writing, EUR/USD trades at 1.0489, the daily low. Price is testing the 55- and 200-hour Simple Moving Averages (SMA). A consolidation below this level should point to a potential end of the rally from the multi-year low. The following support stands at 1.0435, followed by 1.0390.

On the upside, the critical short-term area to watch is 1.0525/30, a horizontal resistance and the 20-hour SMA. Above, the euro should look at 1.0555 and the daily high at 1.0563.

Technical levels