EUR/USD recovery fails, ends week pointing lower

  • US Dollar among tops performs of the week supported by US data and despite lower yields. 
  • Bias in EUR/USD continues to point to the downside, and volatility remains low. 

The EUR/USD is about to end the week hovering around 1.1160, posting a modest decline on Friday and 70 pips below the level it had seven days ago. The positive tone seen on Monday was short-lived, and the pair turned lower, falling on Friday to the lowest in two weeks, slightly above 1.1150. 

Better-than-expected US data over that week (including today’s Consumer Confidence report) contrasted Eurozone soft economic numbers, supporting the US Dollar. The DXY rose over the last four days and approached 98.00, despite the decline in US yields. The 10-year bond posted the biggest weekly gain since March. 

From a technical perceptive, the weekly chart continues to show a bearish bias. “The 20 SMA has extended its slide below the larger ones, all of them far above the current level. Technical indicators in the mentioned chart hold within negative levels, the Momentum lacking directional strength but the RSI turning lower at around 40, all of which maintains the risk skewed to the downside. The mentioned 20 SMA stands at 1.1295, with a weekly close above it being a first warning signal for long-term bears”, wrote Valeria Bednarik, Chief Analyst at FXStreet. 

According to her, a break below 1.1110 (YTD low), “has room to extend its decline toward 1.1060 initially, to later approach the 1.1000 figure. This last will be a tough level to break, psychological support that if broken, could unwind a panic sell-off.

Week ahead: Trade still matters, PMI and minutes 

The White House announced on Friday a delay in the decisions on imposing tariffs to European car imports. Also today, it was reported that the US reached an agreement with Canada and Mexico to remove tariffs on steel and aluminum.  The trade war chapter next week will likely focus on the dispute between China and the US with market participants expecting the resumption of negotiations. 

The critical day regarding economic events in the Eurozone will be Thursday when the Markit PMI’s and the German Ifo survey are due and also when the European Central Bank releases its minutes from its latest meeting. “The PMI is likely to show a small uptick from the current low level, while the German Ifo number may already reflect the trade uncertainty,” according to a report from Danske Bank. 

Regarding the US, “the week will provide important information about the housing market in April with the release of data on existing home sales, with a rebound expected on account of lower mortgages rates. New home sales, for their part, may have declined in April following a stellar run in the three previous months (+23.1% between December and March). We’ll get durable goods orders for April, with a retreat expected based on the decline observed in civilian plane orders. Some clues on the state of U.S. factories in May will also be available with the publication of Markit’s flash manufacturing PMI. Several Fed officials are scheduled to give speeches, notably Jerome Powell (Monday), Charles Evans (Tuesday), Eric Rosengren (Tuesday), James Bullard (Wednesday) and John Williams (Wednesday). Finally, the Fed will release the minutes of its April 30 - May 1 meeting on Wednesday”, explained analysts at the National Bank of Canada. 

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