Home Forex Market Analysis EUR/USD: Crowned King Dollar Pushes Euro to a 4-Month Low

EUR/USD: Crowned King Dollar Pushes Euro to a 4-Month Low

EUR/USD: Crowned King Dollar Pushes Euro to a 4-Month Low

The EUR/USD price collapsed to the lowest level since November 2020 as the US dollar strength continued. The pair fell to 1.1800 on Thursday, 4.45% below the year-to-date high of 1.2348.

King dollar crowned

The US dollar has bounced back in the past few days. Indeed, the dollar index has risen by more than 3.94% in the past few weeks and is trading at the highest it has been since November 23. It has gained against all its peer currencies, including sterling, Japanese yen, Swedish krona, and Swiss franc.

This performance is mostly because of the rising fears of the new coronavirus wave spreading in Europe, where countries like France and Germany have announced new lockdowns. There are also serious concerns about the COVID vaccine by AstraZeneca. In times of crisis, investors tend to rush to the safety of the dollar.

The EUR/USD has also fallen because of the performance of the US bond market. Last Friday, the yields of the 10-year government bonds rose to a 14-month high of 1.74%. The other longer and shorter-dated bond yields have also risen.

While bond yields have cooled this week, they are still at more elevated levels than where they started the year. As such, analysts are worried about the potential for high interest rates in the US as inflation rises. Still, in statements by Jerome Powell, he has committed not to hike rates or abandon the expansionary quantitative easing program since the recovery is a bit uneven. 

Also, data released last week showed that the US inflation is not rising as fast as experts were expecting. In total, the consumer price index (CPI) rose by 1.7% in February from 1.4% in January. Therefore, this growth was not as intense as expected. Also, the Fed has already warned that inflation will rise to 2.0% in the second quarter and then turn lower.

Eurozone recovery ongoing

The EUR/USD has also slumped because of the rising coronavirus cases in the EU. This week, countries like Germany, Italy, and France announced several measures to tame the outbreak. These include the mandatory closure of shops and quarantines for arrivals. This, coupled with the fact that the EU rollout of the vaccine has been patchy, has led many to question the pace of the bloc’s recovery. 

This week, data from Markit showed that the EU recovery accelerated this month. The manufacturing PMI rose from 57.9 in February to 62.4 in March. Similarly, the services PMI rose from 45.7 in February to 48.8, while the composite PMI increased to 52.5. The recovery was spread across all countries in the region. Therefore, there are worries that the rising cases will temper with this recovery.

EUR/USD technical forecast

EUR/USD technical forecast

The daily chart shows that the EUR/USD pair has been under intense pressure lately. It has dropped from the year-to-date high of 1.2350 to 1.1790. The pair has also formed a head and shoulders pattern, which is usually a bearish sign. It has also moved below the 25-day and 50-day weighted moving averages. Further, it is at the second support level of the standard pivot points. Therefore, the pair may continue falling as bears target the third support level at 1.1640, which is 1.40% below the current level. 


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