EUR/USD regains upward momentum and returns to 1.1400 resistance area

• EUR/USD bounces up from 1.1320 lows to retest 1.1400/20 resistance area.
• The US dollar fails to take advantage from the risk-off sentiment.
• Support at 1.1322/16 protects the pair from a deeper correction – Credit Suisse.

The downside EUR/USD correction from three-month highs a 1.1423 on Wednesday has been contained at 1.1320 and the pair has bounced up again on Thursday’s US session to retest 1.1400/20 resistance area.

The USD fails to take advantage of the risk-off sentiment

The euro remains bid, trading quite steady near multi-month highs despite the deterioration of the market sentiment after the Federal Reserve’s downbeat economic report. The Fed dampened hopes of a v-shaped recovery signaling to a painful economic return from the coronavirus shutdown that will require years of extraordinary support.

The Bank foresees a 6.5% economic contraction in the US in 2020 and the unemployment rate to reach 9.3% by the year-end. Against this backdrop, the Fed has committed to using its tools to support the economy and has discarded any monetary tightening at least until the end of 2022.

These predictions have thwarted the risk rally seen over the previous days, boosting demand for safe assets like the Swiss Franc or the Japanese yen. The US dollar, however, has failed to take advantage of the negative sentiment, hit by investors’ concerns about the possibility of a second COVID-19 wave in the US with some states reporting increases on infections.

EUR/USD: 1.1322/16 is a key support level – Credit Suisse

The FX analysis team at Credit Suisse observe that the euro rally might have peaked and points out to the 1.1322/16 support level, “below 1.1322/16 should see a minor top established to add weight to this view with support then seen next at 1.1261, then 1.1241/37 – the low from earlier this week and 23.6% retracement of the entire Match/June rally – which we look to try and hold. A break would warn of a larger top and a more concerted setback, with support next at 1.1160/54.”