Euro Dollar Forecast: EUR/USD Tests Trendline Resistance

EUR/USD Outlook

• EUR/USD clings to trendline
• Psychological level of 1.18 keeps bulls at bay
• Key Fibonacci levels form areas of confluency

Visit the DailyFX Educational Center to discover why news events are Key to Forex Fundamental Analysis

Renewed Hopes for US Stimulus Weighs on Dollar Strength

The need for additional Fiscal stimulus in the US is becoming a matter of urgency as the second wave of the Coronavirus pandemic, combined with an increase in the number of initial jobless claims, continues to weigh on investor sentiment. After hopes of additional support faded last week, optimism resurfaced after House Speaker Nancy Pelosi announced her intentions to reach an agreement with Treasury Secretary Steven Mnuchin within the next 48 hours, should an agreement be possible before the US presidential election on 3 November, which is likely to be an additional driver for price action.

Meanwhile, the staggering number of new Covid-19 related cases, has resulted in the reimplementation of lockdown restrictions throughout Europe, in an effort to curb the spread of the virus, creating a new threat to business activity and overall economic recovery. An additional variance of concern, is the Brexit deadline which is fast approaching, with diminishing hopes that a deal will be reached between Europe and the United Kingdom.

EUR/USD Honors Key Fibonacci Levels

After recovering from March 2020 lows, price action favored the bulls, until reaching a wall of resistance on 1 September at the psychological level of 1.2000, where bears exerted downward pressure, breaking below 1.1700, the 38.2% Fibonacci retracement (between Jan 2017 low and Feb 2018 high), which now remains as support, while the trendline has provided additional resistance for the major currency pair.

EUR/USD Daily Chart

Chart prepared by Tammy Da Costa, IG

MACD Crosses Below Zero

From a short-term perspective, the four-hour chart now highlights prices trading above the 50-period Moving Average (MA), while the Moving Average Convergence/Divergence (MACD) has crossed below the zero line, possible indication that the uptrend may continue, at least for the short-term.

EUR/USD 4 Hour Chart

Chart prepared by Tammy Da Costa, IG

EUR/USD Strategy Ahead

Currently, the psychological level of 1.8 continues to hold s resistance with a break above, leading to the 61.8% retracement of the short-term move becoming a level of interest.

On the contrary, break below 1.176 (the 38.2% Fibonacci of the short-term move), my see downward pressure exerted until the 23.6% retracement level comes into play at 1.17061.

--- Written by Tammy Da Costa, Market Writer for DailyFX.com

Contact and follow Tammy on Twitter: @Tams707