EUR/USD rates, charts and analysis
- EUR/USD He returned some of the week’s losses on Friday
- The move was modest though as the Bears remained in charge
- This week’s news of the German recession makes the ECB’s balancing act more difficult
Recommended by David Cottle
How to trade EUR/USD
The big news of the week was that Germany slid into recession in the first quarter of 2023. It is by far the largest national economy in the Eurozone, and usually among the most successful, so naturally this news should affect sentiment towards the single currency. . Germany had to contend with rising inflation and a massive reduction in its use of Russian energy, as a result of the war in Ukraine.
The “dollar” side of EUR/USD has been buoyed by growing hopes that Congress will back down and pass an increase in the federal debt ceiling before the end of this month. Treasury Secretary Janet Yellen has warned that Washington will run out of cash by June 1 if it cannot.
A deal is still a long way off but the markets are clinging to any signs of progress in the media.
Stronger US data left markets with the distinct impression that the Fed has scope to raise interest rates again, if it wanted to, without causing as much economic pain to its domestic economy as the European Central Bank would have to consider if it moved again. .
The ECB has to deal with both weaker growth and much higher inflation, which makes its monetary balance more difficult.
US consumer spending on Friday was found to be resilient in the series of personal consumption and spending data, which the Fed favors as an economic measure. A measure of core inflation rose 4.7% year-on-year in April, after rising 4.6% in March. Markets believe there is a 40% chance that US interest rates will rise again next month. Inflation numbers like these could see the probability rise, supporting the dollar even more.
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Technical analysis of the EUR/USD pair
The Euro is currently threatening to breach the trend line on the daily chart which has supported the market since late September last year. Provides support at 1.07172 on Friday and it looks like the bulls will struggle to ensure a daily and weekly close above this level.
Pushing below the psychological support at 1.0700 is reluctant so far. The market has not been lower than there since the middle of March, but it is now very close and it will be interesting to see if that level can be defended during the US trading session on Friday.
However, it should be noted that the trend line has not seen a test since early November last year with all subsequent downside slides stalling towards it before it needed a defence. It may be more fitting that the EUR/USD has eased back into a trading range surrounded by the high of mid-March and the lows of March 15 and 8. This came at 1.05245, and a retest of this might be the key to avoiding a deeper fall.
IG’s Customer Sentiment Index finds market sentiment somewhat mixed, but with a clear upward slope of 60%.
– By David Cottle for DailyFX
