- The EUR/USD extends its recovery and is already 200 pips above the lows.
- Upbeat economic data and fewer fears about Italy help the pair recover.
- The EUR/USD exited the oversold territory and broke above downtrend resistance.
The EUR/USD is trading above 1.1700, some 200 pips off the 10-month low of 1.1510 seen on Tuesday. A positive twist in Italy's political drama is the primary upwards driver.
After another round of elections seemed imminent, Italy may have a regular, political government after all. The two populist coalition partners are considering nominating the Euroskeptic Paolo Savona as Foreign Minister rather than at the helm of finances. Elections in which the League would gain ground and the coalition with the 5-Star Movement would grow scared markets as it may have been deemed a de-facto referendum on the Euro.
Nevertheless, a populist government that would take the opposite side of Germany and France is not good news. Markets may realize that there is no proper exit from the Italian crisis.
Another reason for the rise of the EUR/USD has a better basis. Economic data has finally picked up. The winter "moderation" lasted for a long time. A pick up in German Retail Sales and also in inflation figures provide some relief for the European Central Bank. The ECB is still set to sunset the QE program by the end of the year.
The Flash Consumer Price Index (CPI) for May came out at 1.9%, a significant jump from 1.2% in April and at the target of "2% or a bit below" mandated for the European Central Bank. However, energy prices and especially higher oil prices pushed headline CPI higher. While Core CPI also recovered with 1.1%, it remains far from the target. Without a quicker pace of Core CPI gains, headline inflation will not stay high for too long.
On the other side of the Atlantic, US data missed expectations: the ADP NFP came out at 178,000 against 190,000 expected and Q1 GDP was revised down to 2.2% annualized from 2.3% initially reported.
There are additional reasons for the upswing. See 5 reasons for massive escape from the abyss
In the US, the most interesting data point is the Core PCE Price Index. This is the Fed's favorite inflation measure. It reached 1.9% in March, just below the 2% target. In addition, Personal Income, Personal Consumption, and Initial Jobless Claims are of interest.
However, markets will already be looking toward Friday's Non-Farm Payrolls. After April's report disappointed with 164,000 jobs gained and a deceleration of wage growth to 2.6%, the figures for May are expected to be slightly better.
Trade issues remain a concern. The US will later announce if it maintains the exemptions for the EU, Canada, and Mexico on steel and aluminum. The thorny issue was put on hold until the end of May in order for negotiations to continue. So far, there has been little progress and markets fear that imposing sanctions on these three key allies will serve as a significant escalation in the trade wars.
EUR/USD Technical Analysis
The RSI is above 30, which is a novelty. This implies the pair is not in oversold territory anymore. It stayed there for a long time and even fell to the deeper ground. Does its ascent to normal selling conditions mean the pair can now resume its falls?
On the other hand, the pair broke above the steep downtrend resistance (thick black line) on the chart and this is a positive sign. The pair remains below the 50-day and 200-day Simple Moving Averages.
Looking up, 1.1726 was the high point of the week on May 28th and serves as the initial line of resistance. 1.1767 was a stepping stone on the way down and the May 9th low of 1.1822 is the next line of resistance.
On the downside, the May 25th close at 1.1648 is the first line to watch. It is followed by the November trough of 1.1550 and the fresh 2018 low of 1.1510.
More: EUR/USD faces little resistance all the way to 1.1780 — Confluence Detector
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
EUR/USD comfortable below 1.0800 lower lows at sight
The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.
Gold price finishes Thursday’s session set to reach new all-time highs
Gold price rallied during the North American session on Thursday and hit a new all-time high of $2,225 in the mid-North American session. Precious metal prices are trending higher even though US Treasury yields are advancing, underpinning the Greenback.
Bitcoin price extends retreat from $69K as old whales shift their holdings to new whales
Bitcoin price continues to move further away from the $69,000 threshold, gaining ground as BTC bulls hope for a retest of the $73,777 peak. This is because of the general assumption that clearing this blockade would set the tone for a reach higher, marking a new all-time high.
Bears have been standing before a steamroller so far this year
Despite a pushback on rate cuts from Christopher Waller, and what was supposed to be cautious trading sentiment ahead of critical US inflation data released later on Friday, the S&P 500 rose on Thursday, marking its best first-quarter performance in five years.