Market News & Analysis

Top Story

Will the Feds cut help the EUR pop?

In our last article on the EURUSD written back on February 19th, we asked how low could the EURUSD go, after it fell quickly from just below 1.1100 to 1.0800. As a result, oversold readings were at extreme levels and our thoughts were the EURUSD would launch a countertrend rally from the trendline support coming in 1.0750ish.

This played out broadly as expected as the EURUSD reached our 1.0880/1.0920 bounce target five days later, before surging higher again as last week’s violent fall in equity markets and accompanying sharp rise in volatility forced traders to unwind short EUR FX carry trades.   

The Feds overnight intermeeting 50bp cut brings the EURUSD back into focus. Although the Feds rate cut is viewed as part of a coordinated round of easing’s, the U.S. dollar sagged because the Fed quite simply has more room to cut again. It could conceivably take rates all the way back to zero whereas other key central banks are already there and have just pea shooters and cap guns left in their conventional monetary policy armory.

As can be viewed on the chart below, the EURUSD after completing a v-shaped bottom at the 1.0778 low is now testing trend channel resistance, which if we are brutally honest has been a burial ground for past EURUSD rallies.  Importantly we are still waiting on the ECB’s response to the Covid-19 epidemic which depending on the balance of fiscal vs monetary, is likely to determine if the EURUSD fails again or makes a clean break for the hills.

In this regard price action will be important. Should the EURUSD break and post two consecutive daily close above trend channel resistance and year to date highs, let's say 1.1260ish to give it some room, a move towards 1.1600/1.1800 is likely to unfold and the catalyst to consider EURUSD longs. Until that occurs allow for the possibility of another round of EURUSD failure.

Source Tradingview. The figures stated areas of the 4th of March 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.