EUR/USD retreats as second wave push hedge funds to dump euro

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at He lives in Nairobi with his… read more.
on Oct 26, 2020
  • The EUR/USD has retreated today as traders react to the rising number of Covid-19 cases.
  • Countries like France, Italy, Spain, and Germany recorded a sharp increase in cases.
  • Data from CFTC show that hedge funds have gotten relatively pessimistic about the euro.

The EUR/USD price is falling today as the rising number of Covid-19 cases in Europe increase the likelihood of a double dip recession. It is trading at 1.1835, which is the lowest it has been since Friday last week.

EUR/USD falls as Covid cases rises

Rising number of Covid cases

Most countries in Europe have been experiencing a second-wave of the virus in recent days. Yesterday, France confirmed more than 52,000 cases, the highest number ever recorded. That brought the total number of infections to more than 1.14 million.

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In Germany, the biggest economy in Europe, the government confirmed more than 11k cases as the number continued to rise. Similarly, in Spain, the number of cases jumped by more than a third to more than 19,000. At the same time, Italy recorded more than 21,000 new cases. Worse, health experts believe that the situation will get worse as the cold season intensifies.

As a result, more countries have started putting up measures to control the spread. During the weekend, the Italian government unveiled the harshest restrictions since the end of the first wave. The new measures will involve closing non-essential businesses like bars, restaurants, gyms, cinemas, and swimming pools by 6pm.

In Spain, Pedro Sanchez’s government also unveiled strict measures, that will include a nationwide curfew between 11pm and 6am. The government also unveiled the state of alert, which grants it emergency powers. In Ireland, the government announced a full lockdown. Other countries like Germany, France, and Belgium have also announced such measures.

The implications of all this is that the economy may go through another contraction in the fourth quarter. It also increases the likelihood of more divisions in the Eurozone about another stimulus package.

Meanwhile, the EUR/USD is falling as more hedge funds turn bearish on the euro. In a report by the CFTC, the speculative net positions on the euro dropped to 165.9k in the previous week. That was lower than the previous week’s 168.6k. Indeed, the positions have been falling in the past four consecutive weeks. This is an indication that hedge funds are getting more bearish on the euro.

EUR/USD technical chart

EUR/USD technical chart

The 30-minute chart shows that the EUR/USD price has been falling since peaking at 1.1865 on October 23rd. The pair has also moved below the first support of Andrews pitchfork. It is also forming a head and shoulders (H&S) pattern, with the neckline being at 1.1824. It is also along the 23.6% Fibonacci retracement level.

Therefore, the pair is likely to continue falling, as bears attempt to fall to the 38.2% retracement at 1.1800. But they must first move below the second pitchfork resistance at 1.1825. Get started in forex with our free online trading courses.

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