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Euro at Risk, Dow Jones Has Best Day Since 1933 on Stimulus Bets

Euro at Risk, Dow Jones Has Best Day Since 1933 on Stimulus Bets

Daniel Dubrovsky, Strategist

Euro, US Dollar, Dow Jones, Japanese Yen, Australian Dollar – Asia Pacific Market Open

  • Euro is at risk to losses with my EUR index trading under key support
  • US fiscal stimulus anticipation pushed Dow Jones to best day since 1933
  • US Dollar still vulnerable with futures rising, all eyes on virus relief bill

Euro Broadly Weakens, US Fiscal Stimulus Bets Push Dow to Best Day Since 1933

Despite an uptick in EUR/USD, the Euro generally underperformed against its major counterparts on Tuesday. Most of its losses occurred during late European trade and the Wall Street session. During this time, the US Dollar managed to trim some of its losses during another volatile day. Broadly speaking, hopes of at least a US$2 trillion fiscal package from the world’s largest economy likely bolstered sentiment.

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As a result the Dow Jones climbed 11.37% in its best single-day performance since 1933. The S&P 500 soared 9.38% in the largest rise since October 2008. The anti-risk Japanese Yen underperformed as the sentiment-linked Australian and New Zealand Dollars soared. Heightened volatility in the near term can make these kinds of occurrences in stock markets more frequent, including record-breaking down days.

High expectations of US fiscal stimulus may have pushed investors to largely brush aside dismal local data. The IHS Markit Services PMI plunged to a record low 39.1 in March – preliminary - against 42.0 expected. A reading under 50 indicates contraction. If this trend continues as the coronavirus outbreak prolongs social isolation measures, US GDP would be at risk. Consumption accounts for about two-thirds of the economy.

Wednesday’s Asia Pacific Trading Session – US Dollar, Australian Dollar, Japanese Yen

In the interim, S&P 500 futures are pointing higher into Wednesday’s Asia Pacific trading session. That may spell a “risk-on” tone to continue, leaving the haven-linked US Dollar vulnerable. The Australian Dollar is aiming cautiously higher. All eyes are on the expediency of passing a US virus relief bill. Democratic leader Nancy Pelosi said she was optimistic that a deal could be reached soon. A delay risks souring market mood.

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Euro Technical Analysis

My majors-based Euro index – which averages it versus USD, JPY, GBP and AUD – is still at risk to extending the top from earlier this month. A bearish Head and Shoulders pattern may be brewing. More worryingly, prices are trading under rising support from late February. Taking out lows from last week may open the door to further selling pressure in the Euro across the board.

EUR/USD Bullish
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -10% 15% -2%
Weekly -31% 32% -15%
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Majors-Based Euro Index 4-Hour Chart

Majors-Based Euro Index 4-Hour Chart

Chart Created Using TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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