EUR/USD spikes down to 1.1170 before bouncing up to 1.1200 area

• EUR/USD spikes down to 1.1170 lows and bounces up again towards 1.1200.
• Euro remains trapped within a downward trending channel from mid-June highs.
• FX analysts at Credit Suisse war about the risk of a further corrective pullback.

The euro has dropped sharply during the US afternoon trading session, retreating from 1.1250 all the way to three-week lows at 1.1170 before returning to 1.1200 area. Hourly charts show the pair trading within a clear downward trading channel from mid-June highs at 1.1440.

Euro supported by hopes of an EU agreement

The initial optimism regarding the outcome of the European leaders’ discussions over the €750 billion fund to support coronavirus hit countries and sectors has increased confidence on the euro, allowing the pair to trim some of the previous day’s losses. The market, however, has played down the possibility of a specific agreement until at least July, easing the pair's upside momentum.

Furthermore, the ongoing concerns about the growing numbers of coronavirus infections in many US states and in China, and the tensions between India and China in their western Himalayan border remain supportive to the US dollar, which is about to close its best weekly performance since mid-May.

EUR/USD: Below 1.1160 the pair might drop towards 1.1122 – Credit Suisse

The FX Analysis team at Credit Suisse sees the pair still under pressure and warn about the risk for a further corrective pullback, “Support is seen next at 1.1185/84, then 1.1160/54, then the 38.2% retracement of the entire rally from March at 1.1122, which we look to then hold for a fresh attempt to establish a low. Should weakness directly extend we would see the next meaningful support at the 50% retracement and rising 200-day average, where we would look for a better floor to be found.”