Good day forex traders.
Welcome to our weekly review of the popular EUR/USD currency pair.
In the previous reviews we noted a possible double top technical pattern. Having said so, it was made known that a number of analysts were calling for a bearish pressure on the USD. With this in consideration, it was hence important to monitor the economic data for the US.
Looking at the weekly chart of the EUR/USD, we observe that the currency pair is now testing the 1.09 region. This is also the upper bollinger band and hence we may see significant influence on the currency pair.
Should the bullish momentum continue, we may see a drive towards 1.12. A return of bearish pressure will need to overcome 1.08 before heading to 1.06. The middle bollinger band may provide some support.
From a fundamental point of view, concerns about the possibility of an economic slow down for the US have surfaced. BBC reports ”
The US economy slowed dramatically in the first three months of the year, according to official data.
GDP expanded at an annual rate of 0.7% in the first quarter – the slowest rate since the first quarter of 2014.
It will be unwelcome news for President Donald Trump who, during his election campaign, made a pledge to raise growth to 4%.
In a bid to fulfil that promise, on Wednesday the White House proposed slashing the rate of corporation tax.
Treasury Secretary Steven Mnuchin unveiled President Trump’s tax blueprint, which aims to cut the business tax rate from 35% to 15%.
The plan also proposed an incentive for companies to bring back money held overseas and a cut in tax rate for individuals, although the plans were light on detail. ”
A number of analysts are forecasting a challenging path for the Trump administration with regards to economic growth.
On the other side of the Atlantic, the Euro Zone have received positive attention lately due to the economic optimism. BBC reports ”
Inflation in the eurozone accelerated in April, returning to the European Central Bank (ECB)’s target.
Initial estimates from Eurostat showed inflation in the bloc hit 1.9%. That was up from 1.5% in March, but just below February’s four-year high of 2%.
The ECB aims for an inflation rate of below, but close to, 2%.
On Thursday, ECB head Mario Draghi said the eurozone’s economic recovery was “increasingly solid” but inflation was not high enough to lift interest rates.
Following its latest meeting, the ECB kept its main interest rate on hold at zero, and left its bond-buying stimulus scheme unchanged.
The bond-buying programme has already been trimmed to 60bn euros (£51bn) a month from 80bn euros. However, there has been speculation that the ECB could scale back its stimulus measures if the eurozone’s economic recovery continues.
The main factor behind April’s pick-up in inflation was rising energy prices.
Core inflation – a measure that is watched closely by the ECB and which strips out energy and unprocessed food prices – rose to 1.2% in April from 0.8% in March.
The core figure was stronger than expected, and its highest level since September 2013. ”
The above economic data for the eurozone will likely increase positive sentiments. Investors are often attracted by rising or even potentially rising interest rates.
This week brings us the US Federal Funds Rate and FOMC meeting minutes event. Any indication of a differing interest rate plan will likely trigger a response in the markets. The US Non-Farm Payroll at the end of the week will be important too as employment is often taken as a indicator of economic health. Trade safely.