EUR/USD retreats from 1.0600 and clings to 1.0530s on a risk-on mood

The shared currency retreats from weekly highs though remain above the 20-day moving average (DMA), lying at 1.0531, amidst an upbeat sentiment session courtesy of additional stimulus by the People’s Bank of China (PBoC), which cut rates in the 5-year LPR from 4.6% to 4.45%, as concerns of a global recession grow amongst financial analysts. At the time of writing, the EUR/USD is trading at 1.0552.

Buoyant US dollar weighs on the EUR, despite ECB's hawkish pivot

The greenback is recovering some ground on Friday and caught a bid as US equities rallied. US Treasury yields are under pressure, though the 10-year clings to the 2.80% threshold, while the 10-year German bund hovers near the 1% threshold, a level last reached in June 2015.

The Eurozone economic docket featured the German Producer Price Index (PPI) for April, which came hotter than expected. The monthly reading rose by 2.8%, higher than 1.4% foreseen, while annually based expanded by 33.5%, higher than 31.5% estimated. The data does not alter the hawkish pivot by some ECB board members, which expressed that the central bank needs to get above 0%.

The EUR/USD got a lift in the week on the back of further ECB hawkish expressions by the Governing Council (GC) members. On Friday, the ECB GC member Ignazio Visco commented that the ECB can move out of negative rate territory, and a June hike is “certainly” out of the question. Later in the day, he added that he foresees a moderate recession if Rusian gas is shut off.

In the meantime, the Bundesbank President and ECB board member Nagel said that rate hikes could follow in short succession and noted that negative rates are a thing of the past. Of late, ECB’s Francois Villeroy commented that the ECB’s priority in the short time is fighting inflation and will deliver.

EUR/USD Price Forecast: Technical outlook

Friday’s price action leaves the EUR/USD exposed to selling pressure if EUR bears achieve a break below the 20-DMA. Further reinforcing the aforementioned is the RSI, which shifted from pointing upwards, and is aiming downwards at 46.10 in negative territory as the week is about to end.

That said, the path of least resistance for the major is downwards. The EUR/USD first support would be the 20-DMA at 1.0531. Break below would expose the February 2017 lows at around 1.0494, followed by the bottom of the Bollinger bands at 1.0381 and the YTD low at 1.0353.

Key Technical Levels