The euro has been trading with a negative bias on Wednesday after the inability to confirm a break above the 1.12 handle yesterday. The pair’s positive reaction to a widespread dollar sell-off following a rate cut by the Fed turned out to be short-lived. On Tuesday, the Federal Reserve announced an emergency rate cut for the first time since the 2008 financial crisis in an effort to support the financial system and shield the domestic economy from recession risks.
As a result, the greenback fell across the board in a knee-jerk reaction. However, the reaction was fairly limited, with the US currency proceeding to a recovery on Wednesday. Even though the central bank’s decision was unexpected, and the monetary policy easing was quite aggressive (the rate was cut by 0.5%), the selling pressure surrounding the USD didn’t last long, in part amid a wave of risk aversion in Wall Street, as investors took the Fed’s step as sign that the situation with the coronavirus outbreak is more serious than previously thought.
EURUSD has settled in a limited range around 1.1160 today after a rejection from early-January highs marginally above 1.12 yesterday. Fresh data out of the Eurozone came in mixed and did little to help the common currency to regain the upside impetus. Retail sales arrived at +0.6%, as expected while final services PMI was revised lower, to 52.6 from the preliminary estimate of 52.8.
In the short term, the dynamics in the pair will likely remain constrained ahead of fresh economic reports out of the United States, where the services PMI will be in focus. In a wider picture, the pair remains bullish as long as the euro stays above the key moving averages. The initial support now arrives around 1.11, where the 200-daily moving average lies.
Should the downside pressure surrounding the greenback reemerge, EURUSD could retest the 1.12 handle, but to make a clear break above this barrier, the euro may need the additional bullish catalyst, as traders remain cautious amid the coronavirus that continues to spread across the globe, including Europe.