EUR/USD Challenges Daily Downtrend

To say the least, it has been a super-charged news week. The coronavirus, Trump impeachment, FED, and now U.S. GDP (Q4) has spiked participation. At this point, it appears as though the coronavirus outbreak is dominating risk sentiment and the trade of U.S. equities. In addition, today’s rally in the EUR/USD is worthy of note.

As traders, it is important to always be ready for the unexpected. Virtually no one, aside from ardent futurists, anticipated an outbreak the size and scope of the coronavirus. Now, the markets are engaged in a tug-o-war between equities bulls and crisis investors. This morning’s U.S. GDP (Q4) report didn’t do much to reassure risk-asset investors:

Event                                                          Actual       Projected     Previous

GDP Annualized (Q4)                                 2.1%             2.1%               2.1%

GDP Price Index (Q4)                                 1.5%            1.8%               1.7%

Core Personal Consumption (Q4)            1.3%            1.7%                2.1%

All in all, U.S. GDP (Q4) came in as expected. Nonetheless, the report did indicate that both prices and consumption fell quarter-over-quarter. The falling prices are interesting given the focus that the FED has placed upon stimulating inflation. If inflation continues to lag through Q1 and Q2 2020, we may be in for a midsummer rate cut.

At press time (about 1:15 PM EST), the day’s fundamentals are hurting the Greenback. Let’s dig into the technicals surrounding the EUR/USD and see if we can spot a trade or two.

EUR/USD: Daily Technicals

Since Wednesday’s test beneath the 1.1000 handle, the EUR/USD has been grinding north. Rates are now in the vicinity of a key 38% Fibonacci Retracement level (1.1040).

Here are the levels to watch in this market until Friday’s close:

• Resistance(1): 38% Current Wave, 1.1040
• Resistance(2): Daily SMA, 1.1075
• Support(1): Spike Low, 1.0992

Bottom Line: For the time being, the coronavirus panic is sweeping through the markets. A bit earlier, the CDC confirmed the first person-to-person transmission in the United States. This is shaping up to be a market-mover and will be a situation to monitor.

In the event that the EUR/USD continues its rally, a short from the 38% Current Wave Retracement will come into play. Until elected, I will have sell orders in queue at 1.1039. With an initial stop loss at 1.1076, this trade produces 35 pips on a slightly sub-1:1 risk vs reward management plan.

ABOUT THE AUTHOR See More

Shain Vernier

US Analyst

Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.

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