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– EUR / USD continues to fall in descending channel
– Bearish trend established
– The Euro will be motivated by sentiment data
– Dollar eyes – key meeting of the Federal Reserve
The euro / dollar exchange rate is trading at 1.139 at the start of the new week, after falling from around 0.9% the previous week.
The US dollar remains outperforming global exchange rates, with investors noting that the US economy continues to outperform global rivals, a view confirmed by last week's shocking GDP data. Meanwhile, the euro is being held back by the seemingly persistent economic underperformance of the euro area. Traders have expressed disappointment at the fact that the region's largest economy – Germany – has still not shown any concrete signs of a turnaround.
The euro has other risk factors to consider, including concerns about the threat of US tariffs on the European car industry, the uncertainty that precedes the European and Spanish elections.
For the EUR / USD, the technical table is now clearly bearish after last week's drops. The pair continued to fall in the down channel after briefly touching the upper limit. This will probably continue in the absence of any contrary sign. There is still some way to go before touching more support on the channel line below 1.1075.
A break below 1.1109 would likely confirm an extension to the next target at 1.1075.
Over the 4-hour period, the last phase of market action shows a bearish sequence of ups and downs, indicating the downward trend. This is one of the first signs that badysts are looking for to determine the trend. which should extend.
The weekly chart shows how the pair remains stuck below the 200-week Moving Average (MA) – a level of support and resistance essential for the pair. This provides a difficult glbad ceiling limiting the gains.
The measure, as measured by the RSI indicator, has returned to the downside and is in line with last week's capitulation.
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The euro: what to watch this week
The main event of the euro over the coming week is the preliminary estimate of GDP growth Tuesday at 10:00 BST.
Those who expect a similar result to those of the United States and China, who have recently presented strong surprises on the rise, may be disappointed. Growth in the euro area is not expected to grow at the same pace.
On an annual basis, it is expected to increase only 1.1% in the first quarter compared to last year and 0.3% from 0.2% previously on a quarterly basis.
"A worse figure than the lack of growth over the period would reinforce the pessimism of the eurozone economy," says FX Broker economist Raffi Boyadijian XM.com.
Business confidence data released Monday at 10 am is a key element for the euro. It should come out at 0.49 vs. 0.53 previously.
The unemployment rate in the euro area in March is expected to remain unchanged at 7.8% after its publication at 10 am Tuesday. As employment is a relative strength for the euro area, a deterioration would worsen the region's concerns.
Instant inflation figures for April will be released Friday, as well as producer prices for March. Inflation is expected to reach 1.6% and 1.1% for general figures and core values, against 1.4% and 0.8% respectively.
Inflation informs the level of the European Central Bank (ECB) sets the interest rates that have a significant impact on the euro. Higher interest rates or the expectation of these tend to support the euro while, conversely, the lowest rates.
"A combination of disappointing results in terms of GDP and inflation would be the worst result for the euro, which has collapsed below its main support around $ 1,1180 this week", Boyadijian said.
The dollar: what to watch this week
It's a busy week for the dollar with a lot of data planned that could move the market. The dad of all, however, is likely to be the Federal Reserve (Fed) meeting Wednesday at 19:00 (Paris time). Here, the big question will be whether the Fed will always keep its "cautious" tone or whether it chooses to be more optimistic after the huge GDP beat in the first quarter.
Analysts at Wells Fargo argue that GDP data for the first quarter were not as good as they seemed and that the Fed would probably remain in a "cautious" mode.
Their argument is that GDP data appeared to be higher due to stockbuilding, while the real driver of growth, consumerism, remained relatively moderate.
"Even if the economy was not as strong in the first quarter as the overall GDP growth rate suggests, the economy is not likely to slow anytime soon. That said, this week's data corroborate our expectations for the Fed's abstention from raising rates in the near future, "Wells Fargo said.
The other major calendar publications are inflation data, in the form of Monday's Personal Consumption Expenditure (PCE) report, Friday's paid nonfarm payroll report; and in between, and the ISM Manufacturing report released Wednesday.
The non-agricultural payroll in April is expected to show an increase of 181k compared to 196k in March when it was published Friday at 13:30. This would be the long-term average and would not likely have an excessive impact on the dollar.
Average earnings are more likely to have an impact on the currency if they rise sharply or fall. However, economists forecast little change, up one basis point to 3.3% yoy and two basis points to 0.3% yoy. months, in April.
The core PCE price index (the Fed's preferred inflation measure) will likely highlight moderate inflation as it is expected to have moderated slightly from 1.8% in February to 1.7% in March. Figures on income and personal expenses are also released Monday. Both should have accelerated in March. The publication of the data is scheduled at 13:30.
The ISM Manufacturing PMI for April will be closely watched Wednesday at 3:00 pm, when it should show a decline to 55.0 from 55.3 previously. This follows an unexpected rebound in March.
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