EUR/USD rejected at 1.1900 area, pulls back to 1.1850

• EUR/USD recovery has been capped at 1.1895.
• US dollar on the defensive with COVID-19 cases surging in the US.
• The market anticipates Fed's and US Government's action to soften the pandemic damage.

Euro recovery from last week lows at 1.1745 has been capped at 1.1895, and the pair pulled back to the mid-range of 1.1800. The common currency appreciated for the fourth consecutive day after a slightly weaker US dollar although it has been unable to regain 1.1900.

COVID-19 fears hit the US dollar

The EUR/USD bounced up at 1.1845 on the early European session and broke higher amid a broad US dollar weakness. The greenback lost ground against its main rivals, weighed by market concerns about the surging coronavirus cases in the US.

Once the enthusiasm about the positive results of Moderna’s COVID-19 vaccine tests ebbed, the focus has shifted back to the increase of infections and deaths in the US. In this context, the market is starting to price in a response from the Government, in terms of an aid package as well as further monetary expansion by the Federal Reserve.

Fed chairman, Jerome Powell, has confirmed this view in a virtual event in California. Powell affirmed that the Fed will use all tools to support the recovery “for as long as it takes until the job is well and truly done.” 

In Europe, the President of the European Central Bank, Christine Lagarde, has talked down the euro, depicting a negative economic outlook on the back of the second wave of the Pandemic. Lagarde affirmed that the economic impact of the coronavirus will extend well into 2021, which has dampened confidence in the euro.

In the macroeconomic front, US retail sales increased 0.3% in October, coming short of the 0.5% market consensus, and down from the 1.6% increase seen in September. The impact of this event on the dollar, however, has been irrelevant.

Technical levels to watch