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EUR/USD Rate Carves Higher Highs and Lows as Bearish Momentum Abates

March 26
11:06 2020

EUR/USD Rate Talking Points

EUR/USD extends the rebound from the yearly low (1.0636) as European officials show a greater willingness to support the monetary union, and the exchange rate may stage a larger recovery as the bearish momentum abates, with the Relative Strength Index (RSI) reversing course ahead of oversold territory.

EUR/USD Rate Carves Higher Highs and Lows as Bearish Momentum Abates

EUR/USD carves a series of higher highs and lows as recent remarks from European Central Bank (ECB) suggest the Governing Council will take additional steps to combat the weakening outlook for growth, with President Christine Lagarde pledging to “do everything necessary within our mandate to help the euro area through this crisis.”

At the same time, ECB board member Isabel Schnabel insists that the central bank will “take further measures if needed” even though the Governing Council establishes the Pandemic Emergency Purchase Programme (PEPP), with the official going onto say that “there are proposals to use the European Stability Mechanism or the European Investment Bank” amid the growing number of COVID-19 cases across the monetary union.

The comments suggest the ECB will continue to deploy unconventional tools as President Lagarde plans to “explore all options and all contingencies to support the economy through this shock,” but it remains to be seen if the non-standard measures will have the intended impact as the Governing Council pushes monetary policy into uncharted territory.

With that said, the rebound in EUR/USD may prove to be short lived as the US Dollar benefits from the flight to safety, but recent price action raises the scope for a larger correction in the exchange rate as it carves series of higher highs and lows, while the Relative Strength Index (RSI) reverses course ahead of oversold territory.

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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 has become 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 slips to a fresh 2020 low (1.0636).
  • Nevertheless, EUR/USD carves a series of higher highs and lows following the failed attempted to test the Fibonacci overlap around 1.0560 (100% expansion) to 1.0600 (161.8% expansion), with the Relative Strength Index (RSI) highlighting a similar dynamic as the oscillator reverses course ahead of oversold territory.
  • In turn, the close above the 1.0830 (78.6% expansion) to 1.0860 (23.6% retracement) region brings the overlap around 1.0950 (100% expansion) to 1.0980 (78.6% retracement) on the radar, with the next area of interest coming in around 1.1040 (61.8% expansion).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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