The EURUSD currency pair has posted one of the strong recovery rallies in just a few weeks, taking the currency pair from being one of the weakest to the strongest. Price action extended gains all the way from 1.0870 through 1.1250 before easing back lower.
The strong gains in the EURUSD can be partly attributed to receding political risks from the eurozone, following the favorable election results from both the Netherlands and France.
The economic recovery also seems to be firmly entrenched with both inflation and growth seen rising steadily in the past few months. Economic forecasts from various institutes also expect the pace of growth to be sustained in the coming months.
The data has been fairly supportive of the EURUSD. Market participants are expecting the European Central Bank to start tapering its bond purchases even further, or to signal raising interest rates. The ECB has dismissed the rumors, but officials have acknowledged that there is indeed a pickup in the Eurozone’s recovery.
All the positive factors combined alongside a weak patch of data from the US and the uncertainty from the Trump administration led to a strong gain in EURUSD just a week after the French election results.
US macroeconomic data to shape course for EURUSD
Coming up later in the day will be the second revision to the first quarter GDP from the US which was reported at 0.7%. It was the slowest pace of increase since 2014 on a quarterly basis.
Economists are optimistic that the initial GDP numbers will be revised today, showing first quarter GDP growth slightly higher at 0.9%.
Growth slowed as consumer spending declined with the US GDP growth tracking around 2% on average. President Trump has promised a GDP growth of around 4%, which was last seen in the late 1990’s.
Fed officials have maintained that the U.S. will experience a GDP growth of around 2% over the next few years.
Despite the average pace of GDP growth, the Fed has signaled intentions to move ahead with two more rate hikes this year. The next rate hike is expected to come in June.
St. Louis Fed President, James Bullard was the most recent Fed speaker to highlight the fact that the markets were dovish on the rate hikes compared to the Fed’s intentions.
Despite the hawkish comments, the US dollar remains rather subdued against the euro.
EURUSD Technical Outlook – Buy the dip
There are no doubts that the recent strong gains in the EURUSD are likely to see some pullback in prices. Following the attempts to test 1.1250 handle and the failure to post a convincing close above this level, EURUSD could be looking to slip back to 1.0900 levels in the medium term.
On the weekly chart, there is a strong likelihood that we could expect to see a doji candlestick pattern that could be forming suggesting that a pullback could be on the cards.
The daily chart below shows the rising median line which is likely to see a reversal to the short-term trend. We expect that the support level at 1.090 – 1.0866 will be most likely tested ahead of any further gains.
This level also marks the 61.8% region of the previous uptrend, measured from the lows of 1.0340 from January 3, 2017, to the recent highs of 1.1263 from May 23, 2017.
Following the retracement to the support level at 1.0900 – 1.0866, we can expect to see the EURUSD resume its bullish momentum which could then see price action potentially test the current highs at 1.1200 and eventually push higher towards 1.1300.
In the medium term, the risks to the EURUSD will likely come from the June FOMC and ECB meetings. The Fed is expected to hike rates, while it will be left to be seen on whether the ECB will maintain a hawkish or a dovish view on monetary policy.