- EUR/USD gained robust optimistic traction on Tuesday and shot to the best stage since January.
- Dovish Fed expectations, declining US bond yields weighed on the USD and remained supportive.
- Weaker German Q1 GDP was offset by an upbeat IFO survey and prolonged some further help.
A mix of things assisted the EUR/USD pair to achieve robust follow-through traction on Tuesday and climb to the best stage since January. A broad-based US greenback weak spot stays a key theme available in the market amid expectations that the Fed will retain its ultra-lose financial coverage stance, regardless of worries in regards to the inflation outlook. Numerous FOMC officers caught to the stubbornly dovish view and reiterated that inflationary pressures had been extra prone to be momentary in nature. Buyers now appear aligned with the narrative, which was evident from the continual decline within the US Treasury bond yields. In truth, the yield on the benchmark 10-year US authorities bond fell to recent multi-week lows, round 1.56% and continued appearing as a headwind for the buck.
Bulls appeared reasonably unaffected by a downward revision of the German Q1 GDP print, as a substitute took cues from an upbeat IFO survey. The Eurozone’s largest economic system contracted by 1.8% in the course of the January-March interval as in opposition to 1.7% estimated beforehand. The destructive studying, to a bigger extent, was offset by a number one indicator that confirmed enterprise optimism is rising on the again of a pickup within the tempo of vaccinations. In response to the closely-watched month-to-month survey from the IFO institute, Enterprise Local weather Index rose to the best stage since Could 2019 and got here in at 99.2 in Could. Including to this, the Present Evaluation sub-index climbed to 95.7 from 94.1 in April and the Expectations Index jumped to 102.9 in the course of the reported month from the 99.5 earlier.
Then again, the USD failed to achieve any respite following the discharge of the Convention Board’s Shopper Confidence Index, which dropped barely to 117.2 in Could from the 117.5 earlier. In the meantime, the Current State of affairs Index rose to 144.3 from 131.9 in April, whereas Expectations Index fell from 107.9 to 99.1 in the course of the reported month. Aside from this, the underlying bullish sentiment within the monetary market additional undermined the safe-haven USD and remained supportive of the pair’s optimistic transfer. That mentioned, a modest pullback within the US fairness markets prompted some promoting at larger ranges, by the dip was shortly purchased into. The pair lastly settled with respectable intraday positive factors and held regular above mid-1.2200s by the Asian session on Wednesday.
In the meantime, a modest bounce within the US bond yields prolonged some help to the USD and capped any robust positive factors for the foremost. That mentioned, a typically optimistic tone across the fairness markets held merchants from inserting any aggressive bets across the safe-haven USD and allowed the pair to edge larger for the third consecutive session. There’s no main market-moving economic data due for launch both from the Eurozone or the US. Therefore, the US bond yields and the broader market threat sentiment will proceed to play a key function in influencing the USD worth dynamics. This, in flip, ought to present some impetus to the foremost.
Brief-term Technical Outlook
From a technical perspective, the in a single day sustained transfer and acceptance above the 1.2240-45 area has paved the best way for added near-term positive factors. The constructive set-up is bolstered by bullish technical indicators on the every day chart, that are nonetheless removed from being within the overbought territory. Therefore, a subsequent transfer in the direction of reclaiming the 1.2300 mark, en-route YTD tops round mid-1.2300s, seems to be a definite risk.
On the flip aspect, any significant pullback under the 1.2240-45 resistance breakpoint may now be seen as a shopping for alternative. This could assist restrict the draw back close to the 1.2200 mark. That is adopted by help close to the 1.2160-50 area, which if damaged decisively will negate the constructive outlook and immediate some technical promoting.