EUR/USD looks north but risk aversion could play spoilsport
- Sentiment towards EUR/USD is bullish courtesy of signs of a rebound in the German economy.
- Germany's Merkel says a second EU summit may be needed on the fiscal stimulus package.
- Upside may remain elusive if the global stocks turn risk-averse on lingering virus concerns.
EUR/USD looks north with the German economy showing signs of bottoming out and heightened expectations for an EU fiscal stimulus plan. Stronger gains, however, may remain elusive if the stock markets drop, tracking losses on Wall Street.
Greenshoots in the German economy
The German economy has passed its lowest point and the recovery process is starting, the economy ministry said on Monday.
Indeed, there are signs of green shoots in the Eurozone’s largest economy. For instance, orders of German industrial production rose by 10% in May, following April’s record drop, the official data released on Monday showed.
The European Central Bank, therefore, has little reason to ram up stimulus or sound extra dovish this Thursday. In addition, the European Union leaders seem to be making an effort to bridge differences between countries at odds over a stimulus package. German Chancellor Merkel said Monday that a second meeting may be required if a summit this week doesn’t result in an agreement.
As such, the euro traders have little incentive to press the sell button in the short-term. However, if the risk sentiment worsens, the American dollar will likely pick up a haven bid, driving EUR/USD lower.
It's worth noting that the US stocks fell on Monday as a rising number of new coronavirus cases forced the state of California to roll back reopening measures. In addition, the US-China tensions over the latter’s maritime claim in South China weighed over the risk assets. At press time, the pair is sidelined near 1.1342, having jumped by 0.41% on Monday.
Data to be released Tuesday
Germany CPI, HICP, ZEW economic sentiment, ZEW economic conditions, Swiss producer/import price index, EU industrial production, ZEW survey expectation are scheduled for release during the European trading hours. Across the pond, the focus will be on the US core CPI, CPI real weekly earnings, Redbook.
An above-forecast Zew survey expectation (a forward-looking indicator) could put a strong bid under the single currency, lifting EUR/USD well above key resistance at 1.1349.
Technical levels
Author
Omkar Godbole
FXStreet Contributor
Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.
