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EUR/USD climbs off its low as risk-off sentiment lingers

EUR/USD continued its post-Easter decline in global markets, before finding support at $1.086 in the Asian session as traders continued to adopt a cautious tone.

EUR/USD extends decline into Asian trade before early bounce

EUR/USD continued to fall in Asian trade on Thursday, before again finding support at $1.086 – the same level where buyers stepped in overnight after the euro came under pressure on global markets.

The move was in line with broader risk-off sentiment, which saw USD demand pick up for the second straight day.

The cautious tone was accompanied by a sobering report from the International Monetary Fund (IMF), which warned that the economic impact of an enforced global lockdown could rival that of the 1930’s depression.

US stocks also fell as earnings season continued, with Goldman Sachs and Citigroup reporting sharp declines in first-quarter (Q1) revenue while Bank of America booked a $3.6 billion provision for faulty loans.

The demand for US dollars came despite some bad misses in US economic data, with March retail sales falling 8.7% (-8% forecast), while a key manufacturing index for April slumped to a record low of -78.2.

However, risk averse traders continued to bid up the greenback as EUR/USD extended its post-Easter decline.

Glimmer of hope for Thursday trade amid cautious outlook

While the outlook for the broader economic impact of COVID-19 remains uncertain, there was a hint of cautious optimism on Thursday morning (UK time)

Stock market futures across the US, UK and Europe were all pointing around 1% higher following sharper falls on Wednesday.

EUR/USD continued to track sideways just below the $1.09 mark, after finding support at $1.086 near the commencement of Asian trade.

As London traders got to the desk, the euro was threatening to break back above its 200-hour moving average (MA) of $1.0896, although a positive risk-on catalyst is likely to be required to drive a meaningful push back above $1.09.

Looking at the day ahead, the eurozone will issue industrial production numbers for February, although they are unlikely to be of much interest to traders given the lagged economic impact of COVID-19 lockdown measures.

Germany will issue March inflation numbers, while key data out of the US will be led by housing starts and building permits for March, along with the weekly print for initial jobless claims and the US's Philadelphia Fed Manufacturing Index for April.

While sharp misses in those data points could prompt moves in the US dollar, an unexpected catalyst is likely to be required for the EUR/USD to break out of its recent trading range between $1.07 and $1.10.

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

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