The EUR/USD exchange rate held most of its gains in April in recent trading, but it could add to them this week if the congressional drama related to the US debt ceiling leads to the fall of the US dollar or if policymakers at the European Central Bank (ECB) receive a hardening shock. Prior to these events, the bulls succeeded in pushing the EUR/USD pair towards the resistance level 1.1050, breaching the psychological resistance 1.10.
In general, the single European currency – the euro – was one of the best performers last week after it maintained its stability in the face of the dollar recovery. This is including Friday, when global surveys of the Standard & Poor’s Purchasing Managers’ index for the manufacturing and services sectors showed more signs of resilience in the economy. The declines were shallow and short-lived, with the early March bullish trend preserved as seen on the charts, while there are a good number of potential catalysts to extend the recovery in the calendar for this week including a full slate of economic numbers from the US and Europe.
Commenting on the EUR/USD outlook, Lee Hardman, FX Analyst at MUFG says: “EUR/USD is currently testing the top of this year’s trading range between 1.0500 and 1.1000. We expect the pair to break upwards and return closer to pre-conflict levels in Ukraine.” The analyst added, “The resilience of the eurozone economy maintains pressure on the European Central Bank to tighten policy further. ECB officials have left the door open for a bigger 50 basis point increase next month.”
The price of the euro against the dollar is shown in daily intervals with Fibonacci retracements of the March high and selected moving averages that indicate potential areas of technical support for the single currency. In general, MUFG expectations led the euro as a buy last Friday, citing the expected end in May of the US interest rate cycle and a brighter outlook for the economies in the US and Europe, which is seen to lead the single currency again to the 1.1350 resistance over the coming weeks or months.
That notion and rationale could be partially proven as soon as this week, however, if either Friday’s German inflation numbers for March or the eurozone’s first-quarter GDP data sent a hard shock to recently pegged European Central Bank policymakers.
Meanwhile, the path of the US dollar will also have an important impact and there is no shortage of potential catalysts to lead it one way or another. Highlights of the US calendar this week include next Thursday’s release of GDP figures for the first quarter, as well as Friday’s publication of the labor cost index and core PCE price index for the same period.
All of these numbers will be crucial to determining whether the Fed will raise the US interest rate further in the coming months after raising its benchmark for borrowing costs to 5% last month while leaving expectations for only one or two increases this year unchanged. However, what may be more important for the dollar is whether or not there is any preemptive dollar selling in order to hedge risks associated with uncertainty about how long the US government can continue to pay its bills without increasing the legal debt limit.
- The EUR/USD breach of the psychological resistance level 1.1000 will support more bulls’ control over the trend.
- More signs of tightening the European Central Bank’s policy will support the euro’s next gains, and the closest ones after that 1.1075, 1.1120, and 1.1200 respectively.
- The last two levels will push the technical indicators, according to the performance on the daily chart below, to strong overbought levels.
On the other hand, and for the same period of time, the move towards the support level 1.0885 will be important for the bears to control the trend again. So far, the outlook is bullish. The currency pair will be affected today by the US Consumer Confidence announcement
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