EURUSD Lower as the Power Struggle Between Germany and the ECB/EU Continues

As the rift between the ECB/EU and Germany continues, EURUSD has found itself under some selling pressure. The currency pair has given back all of its gains from April 24 to May 1 when it rallied by over 240 pips to 1.1018. As of this writing, EURUSD is down by 0.06% from its opening price as it trades at 1.0801.

If you remember, tensions began when a German court questioned the legality of the ECB’s new bond-buying program. According to German lawmakers, it needed to pass a proportionality assessment. This implied that the central bank would not have enough leeway to execute measures which could provide the 27-nation economy with its much-needed support during this pandemic. The European Union then hit back with a threat to sue Germany. According to European Commission President Ursula von der Leyen, Germany’s decision is a violation of EU law, which was mandated by the EU Court of Justice in 2018.

Today, there is nothing scheduled from the euro zone that could provide EURUSD with support. This means that markets will likely take their cue from developments on this matter in trading the currency pair.

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EURUSD Outlook

On the 4-hour time frame, EURUSD can be seen testing support at the rising trendline (from connecting the lows of March 20, April 24, and May 7). Reversal candlesticks around its current price at 1.0800 could indicate that there are still buyers in the market. These could then suggest that EURUSD may soon trade higher and test resistance around the 100 SMA and 200 SMA at 1.0870. Should this happen, a double bottom chart pattern will have been completed. If there is enough bullish momentum, we could even see the currency pair go all the way up to 1.1018 and test its May 1 highs.

Alternatively, a close below the low of May 7 at 1.0766 could effectively invalidate support at the rising trendline. This could suggest that there is more downside potential for EURUSD and that it could still fall to its March 20 lows at 1.0655.

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