Acceptance Above the 1.1000 Handle Remains Crucial

EUR/USD PRICE, CHARTS AND ANALYSIS:

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EUR/USD FUNDAMENTAL BACKDROP

EURUSD enjoyed a modest bounce following the European open today as it struggles to find acceptance above the 1.1000 handle. Overall, a relatively subdued start for markets in what is a big week packed with economic data releases.

German Ifo data released this morning did indicate a marginal improvement. However, the current assessment and below average expectations will do little to remove fears of stagflation in Europe’s most industrialized economy. Expectations remain below their historical average with Ifo economists stressing that the German economy is nowhere near achieving strong and sustainable growth. There are positives of course as the situation is better than expected for Germany as the country continues to display resilience in what was expected to be a challenging year. The continued revival in industrial activity and recent positive data out of China bode well for the sector and the German economy moving forward. Of course, sentiment continues to shift back and forth in global markets in 2023 and these positive signs for the German economy could dissipate in the second half of 2023.

KEY ECONOMIC DATA AHEAD

As markets appear resigned to the fact that the US Federal Reserve will proceed with a 25bps in May the Euros recent bullish run against the greenback faces some resistance. The ECB and President Christine Lagarde in particular have been key to stress that the ECB are some way off in finishing their hiking cycle with comments over the weekend from Pierre Wunsch (Belgian Central Bank President) backing that up. Policymaker Wunsch told the financial times the ECB will have to wait for wage growth and core inflation to go down before a pause can happen.

We do have some ECB members scheduled to speak today with policymaker Villeroy kicking things off. Further hawkish rhetoric could provide Euro bulls with some impetus however the recent high at the 1.1070 area may prove a hurdle to far as key US and Euro Area data events lie ahead this week.

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The Core PCE data out of the US on Friday is likely to be the big one this week while German Inflation also due on the same day could stoke some serious volatility as well. Personally, I don’t see any of the other data releases having a material impact on the overall direction of EURUSD in the short-to-medium term. Given that the ECB are expected to be more aggressive moving forward with rate hikes as core inflation remains a sticking point, comments from the Fed in May regarding policy for the rest of 2023 is likely to be key for EURUSD moving forward.

TECHNICAL OUTLOOK AND FINAL THOUGHTS

From a technical perspective, EURUSD remains in a broader term uptrend while trading with an ascending channel of sorts. Very similar to the price action we had seen from November 2022 to early February 2023 where EURUSD staircased its way higher within an ascending channel.

The 1.1000 handle has remained somewhat of a stumbling block for the pair as despite a break and daily candle close above on April 13, Euro bulls have struggled to hold on to gains above 1.1000. Having already tested the higher low support area (1.0900) last week price action does hint at a fresh high which would need to clear the current yearly high at around 1.10760 with a daily candle close. This would confirm a continuation of the uptrend with the next key area of resistance resting around the 1.1140 mark.

Looking more closely from an intraday point of view the 1.1000 area remains a key pivot zone with resistance resting at 1.1033 and 1.10750 respectively. A break lower in the early part of the week brings support around 1.0950 and 1.0900 into focus. This zone between the 1.0900 handle and 1.10750 (2023 high) could remain intact for the short term and may even hold till the Fed meeting in early May. For now, it appears as though rangebound trading, a shorter-term outlook may be more beneficial when looking at potential opportunities on EURUSD.

EUR/USD Daily Chart – April 24, 2023

Source: TradingView

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda