EUR/USD Violates Upward Channel – A Quick Daily Outlook!
Arslan Butt • 3 min read
The EUR/USD currency pair closed at 1.20724, after placing a high of 1.21830, and a low of 1.20620. After rising for two consecutive sessions, the EUR/USD pair dropped to a six-day low on Friday, amid the strength of the broad-based US dollar and the rising US yields. The riskier currencies, like the EUR/USD, were harder-hit amid rising fears that central banks will have to tighten sooner than previously expected. The US Dollar Index (DXY) climbed to a one-week high, at 90.468, during the early European trading hours on Friday. Due to the strength of the US dollar, combined with the weakness of the Euro, which is a risk currency, the EUR/USD pair saw a sharp decline in its prices on Friday.
Recently, the focus of the global market has been solely on the government bond yields, particularly the US Treasuries. The expectations of rising inflation have been taken aggressively by the markets, as economies are recovering on the back of extremely high levels of fiscal stimulus and very loose monetary policies. The 10-year US Treasury note yields have crossed the 1.6 level, and were trading at the highest level in one year on Friday. This bolstered the US dollar, dragging the EUR/USD prices further to the downside.
On the data front, at 12:00 GMT, the German Import Prices came in, showing a rise to 1.9%, against the expected 1.1%, which supported the Euro and capped any further losses in the EUR/USD pair. At 12:45 GMT, the French Consumer Spending was released, indicating a drop to -4.6%, against the projected -3.5%, which weighed on the Euro and added to the losses in the EUR/USD pair. In February, the French Prelim CPI came in at -0.1%, against the forecast of -0.3%, supporting the Euro and limiting the downfall in the EUR/USD pair. The French Prelim GDP for the quarter dropped to -1.4%, against the expected -1.35, weighing on the Euro and adding further downside momentum to the EUR/USD pair. At 13:00 GMT, the Spanish Flash CPI for the year came in. It dropped to 0.0%, against the projected 0.6%, and weighed on Euro, thus adding to the losses in the EUR/USD pair.
From the US side, at 18:30 GMT, the Core PCE Price Index for January came in at 0.3%, against the estimated 0.1%, supporting the US dollar and adding to the losses in the EUR/USD prices. The Goods Trade Balance for January showed a deficit of -83.7B, against the estimated -83.0B, weighing on the US dollar and capping any further losses in the EUR/USD. The Personal Income for January surged to 10.0%, against the estimated 9.4%, which gave the greenback a boost and added to the downside pressure on the EUR/USD.
Personal Spending fell to 2.4% in January, against the estimated 2.6%, which weighed on the US dollar and helped the EUR/USD to recover some of its losses. The Prelim Wholesale Inventories rose to 1.3%, against the estimated 0.3%, weighing on the US dollar and capping any further downside in the EUR/USD. At 19:45 GMT, the Chicago PMI for February came in, indicating a drop to 59.5, against the estimated 61.0, putting pressure on the US dollar, and limiting the downside momentum in the EUR/USD. At 20:00 GMT, the Revised UoM Consumer Sentiment for February came in. It remained in line with the estimates of 76.8. The Revised UoM Inflation Expectations also remained flat at 3.3%.
Furthermore, on Friday, European Central Bank policymaker Yannis Strournaras became the first ECB official to openly call for increasing ECB bond purchases, in an effort to stem a rise in borrowing costs. He said that there was an unwarranted tightening of bond yields, and it would be desirable for the ECB to accelerate the pace of PEPP purchases, in order to confirm favorable financing conditions during the pandemic. The comments by Strournaras put more pressure on the Euro, dragging the EUR/USD pair further to the downside.
Daily Technical Levels
Pivot Point: 1.2084
The EUR/USD is trading at the 1.2085 mark, facing immediate resistance at the 1.2090 level, whereas the support remains at the 1.2060 level. Since the EUR/USD is holding below the 50 EMA, we may see a continuation of the selling trend in the EUR/USD pair until 1.2060, and below this, the next target could be 1.2020. Good luck!