The euro climbed to nearly one-month highs around 1.1370 earlier in the day on Thursday. However, the pair encountered some offers in this area and gave up intraday gains in recent trading. EURUSD is holding above the 1.13 handle, suggesting the upside potential in the common currency is limited in the short term.
As investor sentiment remains unstable in the current environment, the safe-haven dollar demand prevails, capping the euro’s bullishness. Further increase in coronavirus cases in several countries coupled with rising geopolitical tensions surrounding Hong Kong prevent global financial markets from a sustainable rally amid some signs of economic recovery from a contraction seen earlier this year.
However, the euro may yet resume the ascent and climb to fresh highs in the medium term. EURUSD could be helped by the European authorities through the European recovery fund that could be created soon. This step should add to the appeal of the common currency.
Also, broad-based weakness in the greenback could occur amid the rising US government debt and economic risks from the second wave of the coronavirus pandemic. Meanwhile, the ECB official Villeroy noted today that the central bank was ready to be innovative with policy tools if needed. On the one hand, this statement could be seen as dovish, suggesting the regulator will continue to add stimulus measures. On the other hand, it should be euro-positive in the context of the outlook for economic recovery.
Against this backdrop, the EURUSD pair may challenge the 1.1420 resistance in the medium term and rally to fresh long-term highs above 1.15. Such an upbeat scenario could be derailed, however, if global market sentiment turns sour because of the coronavirus and geopolitics.
In the immediate term, the euro will likely struggle to exceed the 1.14 barrier as the bulls are not ready for a more robust attack just yet. On the downside, the nearest support arrives at 1.13, and a daily close above this level would point to limited downside risks in the short term.