EUR/USD Bears Persist Amid Eurozone Economic Concerns and US Dollar Strength Now

Posted Friday, May 26, 2023 by
Arslan Butt • 2 min read

The EUR/USD pair remains under bearish control near a two-month low of 1.0720 during Friday’s Asian session. This downturn reflects the robust strength of the US Dollar and mounting economic concerns in the Eurozone, providing bearish traders with momentum following their dominance over the past three days.

On Thursday, the final reading for Germany’s Gross Domestic Product (GDP) for Q1 2023 was revised downward to -0.3% QoQ, significantly lower than the 0.0% initially estimated. This negative surprise prompted German Finance Minister Christian Lindner to acknowledge these “unexpectedly negative signals” in the GDP data.

In response, European Central Bank (ECB) Governing Council member, Bostjan Vasle, stressed in an interview with Slovenia’s Delo newspaper that the central bank must persist in increasing interest rates to rein in inflation. Conversely, ECB Vice President Luis de Guindos highlighted potential inflation risks, including banking tensions.

Simultaneously, encouraging US data, coupled with fears of a US default and caution ahead of key US statistics on Durable Goods Orders and inflation, bolstered the US Dollar and yields. Thus, the EUR/USD bears remain optimistic, given the preponderance of positive indicators for the US Dollar over the Euro.

Regarding data, the second estimate for the US Annualized GDP for Q1 2023 was revised upward to 1.3% compared to the first forecast of 1.0%. The Chicago Fed National Activity Index for April improved to 0.07, and Kansas Fed Manufacturing Activity rose to -2 in May from -21 previously, both exceeding expectations. However, despite Year-on-Year improvements in US Pending Home Sales for April, there was a Month-on-Month easing, while Core Personal Consumption Expenditures increased to 5.0%.

Fears of a looming US default have further fueled the US Dollar’s dominance, following US House Speaker Kevin McCarthy’s announcement of a lack of agreement on the debt deal and the continuation of discussions.

Consequently, the US Dollar Index (DXY) reached a ten-week high of 104.20, while the US 10-year and two-year Treasury bond yields climbed to early March highs around 3.82% and 4.54%, respectively. However, Wall Street ended mixed, and the S&P500 Futures showed mild losses.

Going forward, risk catalysts will play a crucial role in determining short-term EUR/USD movements, with key data releases like US Durable Goods Orders for April and the Core PCE Price Index for the same month being closely watched.

On the technical front, the EUR/USD pair has shown a positive start, attempting to breach the 1.0730 level, driven by stochastic positivity. However, with the latest daily candlestick remaining below this level, the bearish trend is expected to persist, aiming for 1.0650 as the next target. Breaching the 1.0730 and 1.0750 levels could halt this decline and initiate additional gains.

For today, the expected trading range is between 1.0640 support and 1.0800 resistance, with an ongoing bearish trend.

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