EUR/USD roars back as dollar weakens ahead of Fed and ECB decisions


The EUR/USD pair bounced back as traders reacted to positive overtones from Europe. The pair reached an intraday high of 1.0886 at 09:35 GMT.

EUR/USD soars because of dollar weakness

The main reason for the weakness was the weaker dollar. The US dollar dropped by 80 basis points against the Swedish krone and 50 basis points against the Japanese yen. It also declined by 50 basis points against the Canadian dollar and sterling. In total, the dollar index declined by more than 45 basis points.

The reason behind this move could be the fact that a number of countries have started to ease the coronavirus lockdown. In New Zealand, the country’s leader said that the country had eliminated the virus. She also asked the residents to observe caution as she reopened the economy. The same was the case in Australia, where the country continued the gradual reopening.

Europe starts to ease lockdowns

Meanwhile, in Europe, governments have started to ease the lockdowns. According to Bloomberg, Spain and France leaders have started making plans about how to ease the lockdowns. The Spanish prime minister will lay out these plans today after he concludes a cabinet meeting.

At the same time, Italy, which was once the epicentre of the illness has said that it would start allowing some movements. This follows other European countries like Germany, Switzerland, and Belgium that have started a gradual reopening push.

The slump of the dollar could be because traders anticipate demand for local currencies as the pandemic ebbs.

EUR/USD focuses on central banks

Amidst all these, traders are still focusing on the upcoming central bank meetings. The Fed will deliver its rates decision tomorrow followed by the ECB, which will deliver its decision on Thursday. Investors expect the Fed to leave rates and the current monetary policy intact. On the other hand, they expect the ECB to leave rates unchanged but to tweak its other policies. For example, they expect it to talk about the current quantitative easing.

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EURUSD technical outlook

On the hourly chart, the EUR/USD pair reversed the previous downward trend and bounced back to a high of 1.0886. As the pair did this, it moved above the important resistance at 100-day EMA and the 38.2% Fibonacci retracement level of 1.0825. Also, the pair has formed the reversal three white soldiers pattern. Also, the price is a few pips below the 61.8% retracement level.

Therefore, following this price action, I expect bulls to remain in control. A break above the 61.8% retracement of 1.0888 could see bulls attempt to move to the 78.6% retracement level at 1.0932. On the other hand, a close below the 50% retracement level of 1.0856 would invalidate this trend.

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