The EUR/USD cross has retracted today as traders respond to the rising number of Covid 19 cases.
Countries such as France, Italy, Spain and Germany saw a sharp increase in cases.
CFTC data shows that hedge funds have become relatively pessimistic about the euro.
The EUR/USD price is falling today as the rising number of Covid 19 cases in Europe increases the likelihood of a double dip recession. It is trading at 1.1835, the lowest level since Friday last week.
EUR/USD falls with rising Covid falls
Rising number of Covid cases
Most countries in Europe have experienced a second wave of the virus in recent days. Yesterday France confirmed more than 52,000 cases, the highest number ever recorded. This brings the total number of infections to more than 1.14 million.
In Germany, the largest economy in Europe, the government confirmed more than 11,000 cases, while the number continued to rise. In Spain, too, the number of cases rose by more than a third to more than 19,000, while Italy recorded more than 21,000 new cases at the same time. Worse still, health experts expect the situation to worsen as the cold season intensifies.
As a result, more countries have begun to take measures to stem the spread. Over the weekend, the Italian government revealed the toughest restrictions since the end of the first wave. Under the new measures, non-essential businesses such as bars, restaurants, gyms, cinemas and swimming pools will be closed until 6pm.
In Spain, Pedro Sanchez’s government also unveiled tough measures, including a nationwide curfew between 11pm and 6am. The government also revealed the state of alert, which gives it emergency powers. In Ireland, the government announced a complete lockdown. Other countries such as Germany, France and Belgium have also announced such measures.
All this means that the economy could shrink again in the fourth quarter. It also increases the likelihood of further splits in the euro zone via a further stimulus package.
In the meantime, the EUR/USD exchange rate is falling as more hedge funds are down against the euro. According to a CFTC report, net speculative positions against the euro fell to 165.9 thousand the previous week. This was lower than the 168.6 thousand of the previous week. In fact, the positions have decreased for the last four consecutive weeks. This is an indication that hedge funds are becoming increasingly bearish against the euro.
Technical chart EUR/USD
Technical Table EUR/USD
The 30-minute chart shows that the EUR/USD price has fallen since its high of 1.1865 on October 23rd. The pair has also moved below the first support of Andrew’s pitchfork. It is also forming a head and shoulder pattern (H&S) with the neck line at 1.1824. The neckline is also at the 23.6% Fibonacci retracement level.
Therefore, the pair is likely to continue to fall as bears attempt to fall to the 38.2% retracement level at 1.1800. But they must first move below the second pitchfork resistance at 1.1825. Start trading forex with our free online trading courses.