- After gains this week, the EUR/USD exchange rate is expected to be better protected against further weakness, as a key German survey showed that the economy may have weathered a tough phase.
- The rebounding trend for the EUR/USD exchange rate towards the resistance level of 1.0715 before settling around 1.0685 at the time of writing, awaits new factors of strength instead of returning to the broader downtrend.
Carsten Brzeski, an analyst at ING Bank, commented on the results of the April Ifo index, Germany's leading indicator: "Germany seems to be at a cyclical turning point." According to the Ifo data, the current assessment came in at 88.9 in April, up from 88.1 and higher than the expected 88.7. Recently, the Ifo expectations component was up at 89.9, rising from 87.7 and beating the expected 88.9. Brzeski added, "Based on previous experiences, three consecutive increases tend to be a turning point in the economy."
According to forex trading platforms, the EUR/USD exchange rate has recovered this week, with analysts suggesting that German economic data will support technical support levels. In this regard, Jeremy Bolton, an analyst at Reuters, said, "Euro short sellers have reason to look for more support." Overall, the developments will instil confidence for those looking to enter euro short positions against the US dollar in 2024. Derek Halpenny, Head of Currency, and Gold Analysis at MUFG Bank, stated, "Even moderate better growth in Europe is likely to curb the dollar's rise in the future."
Samer Hassan, market analyst at XS.com, noted that renewed optimism about the German economy has pushed the yield on 10-year German bonds to its highest opening level since last November. He added, "This change in expectations about monetary policy, along with the return to economic activity, helps to narrow the yield gap between US Treasury bonds and German bonds, which will limit the impact of sharp rises in US yields on the euro."
Meanwhile, the exchange rate of the euro against the US dollar was under pressure in April, and fell to a low level of 1.0601, its lowest in more than five months, as markets reduced their bets on US interest rate cuts and strengthened the yield advantage on US bonds. Any slowdown in US bond yields and a rise in Eurozone bond yields will support the euro against the dollar as the yield spread begins to close again.
For its part, ING Bank says that the difficult economic data for the first two months of this quarter already indicates that Germany could have emerged from the recession earlier than expected. The bank's analyst added: “Strong activity in the construction sector against the backdrop of mild winter weather and a technical recovery in commercial and industrial production were supposed to compensate for weak private consumption. “It appears that this cyclical recovery will continue in the second quarter.”
According to Forex currency market trading, the euro exchange rate rose against the US dollar in the middle of the week’s trading, after the release of the purchasing managers’ index reading for abundant German services, which cast a shadow over another disappointment in the manufacturing sector. According to the advertiser, Europe's largest economy recorded a significant rise in service sector production, as the Services Purchasing Managers' Index rose to 53.3 in April, exceeding expectations (50.6) and 50.1 in March.
For its part, Standard & Poor's, the global agency that produces the Purchasing Managers' Index report, said: “The German private sector returned to growth at the beginning of the second quarter.” Although manufacturing was disappointing (42.2 vs. 42.8 expected), the explosion in services was enough to push the composite PMI into growth territory at 50.5, well above expectations of 48.6.
EUR/USD Technical analysis and forecast:
The price of the EUR/USD currency pair continues to trade at a few levels above the 100-hour moving average line. As a result, the currency pair appears to have plenty of room to move either side of the 14-hour RSI before entering overbought or oversold conditions. In the near term, and according to the performance on the hourly chart, it appears that the EUR/USD currency pair is trading within a sideways channel formation. Also, the 14-hour RSI appears to support sideways movement, leaving plenty of room on either side of the curve. Therefore, the bulls will target potential upside profits at around 1.0717 or higher at the 1.0743 resistance. On the other hand, the bears will look to pounce on pullbacks at around 1.0669 or lower at the 1.0640 support.
In the long term, and according to the performance on the daily chart, it appears that the EUR/USD currency pair is trading within a descending channel. However, the 14-day RSI has rebounded recently to avoid entering oversold levels. Therefore, the bulls will target extended bounce profits at around 1.0779 or higher at 1.0880 resistance. Ultimately, the bears will look to pounce on profits at around 1.0610 or lower at the psychological support of 1.0500.
Ready to trade our daily Forex forecast? Here’s a list of some of the top forex brokers in Europe to check out.