EUR/USD hits three-week highs above 1.1000 as DXY tumbles

• US dollar consolidates losses versus majors, positive against emerging market currencies. 
• EUR/USD adds to recent gains, having best weekly performance since June. 

The EUR/USD pair is rising sharply on Thursday, having the best day in months on the back of a weaker US dollar against majors. Recently the pair reached at 1.1005, the highest level in three weeks. 

DXY affected by yields, Fed’s rate cut expectations 

Economic data from the US showed some better-than-expected numbers but did not offer help to the greenback. The DXY is falling 0.40%, trading at 98.60, the lowest in almost three weeks. Risk aversion continues to dominate global markets, pushing the greenback higher versus emerging market currencies but not against majors. 

The decline in US yields weighs on the DXY. The 10-year yield bottomed earlier today at 1.25%, a new all-time low before bouncing modestly to the upside. The CME FedWatch Tool shows Fed Funds futures have priced a nearly 70% probability of a rate cut from the Federal Reserve at the March meeting. 

Rate cut expectations continue to rise boosted by the sharp decline seen in Wall Street and the potential economic impact of the coronavirus. Another factor supporting the rally in the pair related to yields is the decline in the spread between US and German bonds. 

Technical outlook 

The trend remains bullish for EUR/USD. The immediate support emerges at 1.0955/60 followed by 1.0905 and the uptrend line from last week lows at 1.0865. On the upside, the pair faced resistance around the 1.1000 area that has become the critical level. A consolidation above 1.1000 would suggest more gains ahead, probably targeting 1.1025. 

Short-term technical indicators stand at extreme overbought readings, so a consolidation below 1.1000 could take place over the next hours, particularly if the US dollar stabilizes.