EUR/USD FUNDAMENTAL BACKGROUND
EURUSD saw a slight bounce today after the European open and is struggling to break above the 1.1000 level. Overall, markets had a relatively subdued start to a week packed with economic data.
German Ifo data released this morning did point to a slight improvement. However, the current assessment and below-average expectations will do little to allay fears of stagflation in Europe’s most industrialized economy. Expectations remain below the historical average and Ifo economists stress that the German economy is far from achieving strong and sustainable growth. Of course, there are positives to report, as the situation in Germany is better than expected as the country continues to show resilience in a year that was expected to be difficult. The continued pick-up in industrial activity and recent positive data from China bodes well for the sector and the German economy going forward. Of course, sentiment in global markets continues to swing back and forth in 2023, and these positive signs for the German economy may dissipate in the second half of 2023.
IMPORTANT ECONOMIC DATA GOING FORWARD
As markets seem resigned to the fact that the US Federal Reserve will make an interest rate move of 25 basis points in May, the recent upward trend of the euro against the dollar is meeting resistance. The ECB, and in particular its president Christine Lagarde, have repeatedly stressed that the ECB is far from finished with its rate hike cycle. Speaking to the Financial Times, Wunsch said the ECB would have to wait for wage growth and core inflation to fall before pausing.
A number of ECB members are scheduled to speak today, starting with Villeroy. More hawkish rhetoric could give the euro bulls some lift, though the recent high in the 1.1070 area may prove to be too high a hurdle with key US and eurozone data due this week.
The core PCE data from the US on Friday is likely to be the most important event this week, while German inflation, which will also be released on the same day, could also provide some volatility. Personally, I do not believe that the other data releases will have a significant impact on the overall direction of the EURUSD in the short to medium term. With the ECB expected to be more aggressive with rate hikes going forward, as core inflation remains a sticking point, the Fed’s comments in May regarding policy for the remainder of 2023 are likely to be crucial for EURUSD going forward.
TECHNICAL OUTLOOK AND FINAL CONSIDERATIONS
From a technical perspective, EURUSD remains in a longer-term uptrend and is trading in a kind of ascending channel. This is similar to the price action we saw from November 2022 to early February 2023, when EURUSD gradually rose within an ascending channel.
The 1.1000 level remains somewhat of a stumbling block for the pair, as euro bulls struggled to hold gains above 1.1000 despite a breakout and a daily candlestick close above it on 13 April. Having already tested the area of higher lower support (1.0900) last week, price action points to a new high that would need to break above the current yearly high at around 1.10760 with a daily candlestick close. This would confirm a continuation of the uptrend, with the next key resistance area being around the 1.1140 level.
From an intraday perspective, the area around 1.1000 remains an important pivot zone with resistance at 1.1033 and 1.10750 respectively. A break lower early in the week brings support around 1.0950 and 1.0900 into focus. This zone between 1.0900 and 1.10750 (2023 high) could remain intact in the short term and even hold until the Fed meeting in early May. At the moment, it looks like trading within the trading range, a shorter-term outlook could be more beneficial when it comes to potential opportunities for EURUSD.
EUR/USD Daily Chart – April 24, 2023