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Euro Forecast: EUR/USD Levels to Watch as April Range Remains in Play

Euro Forecast: EUR/USD Levels to Watch as April Range Remains in Play

David Song, Strategist

EUR/USD Rate Talking Points

EUR/USD carves a series of lower highs and lows following the limited reaction to the US Non-Farm Payrolls (NFP)report, but the exchange rate may trade within a more defined range as the decline from earlier this month fails to produce a test of the April low (1.0727).

Euro Forecast: EUR/USD Levels to Watch as April Range Remains in Play

EUR/USD trades near the monthly low (1.0767) as a growing number of European Central Bank officials respond to the ruling by the German Constitutional Court, with board member Isabel Schnabel emphasizing that the Governing Council is “undeterred in our willingness and ability to act.”

Schnabel insists that “this message also seems to have been well-understood by market participants” as the ECB pushes monetary policy into uncharted territory, and the comments suggest the Governing Council will expand its balance sheet throughout 2020 as President Christine Lagarde insists the central bank “will do everything necessary within our mandate to support the recovery.”

It remains to be seen if the ECB will unveil more non-standard measures over the coming months as President Lagarde warns that “the focus will need to shift from providing backstop support to enabling the recovery,” but the economic shock from COVID-19 may force the central bank to further support the monetary union as the “growth scenarios produced by ECB staff suggest that euro area GDP could fall by between 5% and 12% this year, depending crucially on the duration of the containment measures.”

As a result, the ECB may continue to endorse a dovish forward guidance at the next meeting on June 4, with the Euro at risk of facing headwinds throughout 2020 as the Governing Council “stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner.”

With that said, the Euro may underperform against its US counterpart in the current environment as the greenback benefits from the flight to safety, but EUR/USD may trade within a more defined range in May as the decline from earlier this month fails to produce a test of the April low (1.0727).

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EUR/USD Rate Daily Chart

Image of EUR/USD rate daily chart

Source: Trading View

  • Keep in mind, the monthly opening range has been a key dynamic for EUR/USD in the fourth quarter of 2019 as the exchange rate carved a major low on October 1, with the high for November occurring during the first full week of the month, while the low for December happened on the first day of the month.
  • The opening range for 2020 showed a similar scenario as EUR/USD marked the high of the month on January 2, with the exchange rate carving the February high during the first trading day of the month.
  • However, the opening range for March was less relevant amid the pickup in volatility, with the pullback from the yearly high (1.1495) producing a break of the February low (1.0778) as the exchange rate slipped to a fresh 2020 low (1.0636).
  • Nevertheless, EUR/USD may trade within a more defined range in May amid the failed attempt to test the 1.1040 (61.8% expansion) region, which lines up with the April high (1.1039), while the decline from earlier this month appears to have stalled ahead of the April low (1.0727).
  • In turn, EUR/USD may continue to track the April range if it fails to break/close below the 1.0780 (100% expansion) region, with a move above the 1.0830 (78.6% expansion) to 1.0860 (23.6% retracement) region bringing the Fibonacci overlap around 1.0950 (100% expansion) to 1.0980 (78.6% retracement) on the radar.
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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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

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