Yesterday, the euro was expected to extend its losses and decline by about 40-50 points, just like it happened on Monday. At first, it did so, but later in the day, even before the start of the North American session, a gradual decline developed into a rapid plunge.
As a result, the euro lost almost 100 points even though there was no macroeconomic news published. There was no fundamental background yesterday apart from one event. In the afternoon, a surge in new coronavirus cases was reported in Germany. This news sparked panic in the markets.
On Tuesday, the number of newly recorded cases in Germany exceeded 100,000. This is quite a lot for the most significant European economy. In this regard, Germany has now caught up with the UK, France, and Italy, who exceeded this number a few days ago. Notably, the situation in Germany remained stable for quite a long time.
The only encouraging fact is that the number of deaths from Covid-19 has not increased. This lowers the possibility of a new lockdown. In general, the news has already been digested by the market. So the pressure on the euro may ease unless the German government announces new restrictions today.
The European currency is unlikely to fall further. Its previous uptrend was of a very speculative nature which did not come in line with macroeconomic data.
The EUR/USD pair accelerated its downward movement after the price had settled below 1.1400. Following the momentum, the quote reached the level of 1.1314. In three trading sessions, the euro depreciated by more than 150 points.
The RSI technical indicator closely approached the oversold zone on the H4 time frame. A slower pace of decline confirmed this signal on the chart. The Alligator Indicator on H4 holds below 1.1400, where moving averages point to the bearish bias on the pair.
The price rebounded from the mid-term 23.6 Fibonacci level on the daily chart, which can signal the end of the corrective movement.
Outlook
Currently, the pair is trading flat after slowly moving within the range. Eventually, this sideways movement may cause new jumps in the price. The best trading strategy now is to wait for a breakout of either channel boundary between 1.1310 and 1.1335.
You can consider opening buy positions as soon as the price consolidates above 1.1335, with the next target at 1.1370. Selling the pair will become relevant when the quote settles below 1.1310 with the target at 1.1280.
Comprehensive indicator analysis generates a mixed signal on the short-term and intraday charts due to the pair's sideways movement. In the medium term, technical indicators confirm the downtrend and signal further sales.