Daily Market Recap - EURUSD Stable below the 1.20 mark

The euro remained stable against the dollar on Friday, in a foreign exchange market without conviction, the greenback remaining close to its lowest in a month against the single European currency.

At market close on Friday, the euro clawed back 0.14 percent against the dollar, at 1.19817 dollars to the euro, rounding off a 0.71 percent for the EURUSD on a weekly basis. The pair has firmly bounced off its monthly low at around 1.17 and put in 2 consecutive weeks of bullish performance.

Forex traders remain hesitant on the value of the greenback, which after having started the year on the hoof (it is still rising by 2% against the euro year to date), has weakened since the beginning of the month.

However, the signals are accumulating on a rapid recovery in the United States: consumer morale up, inflation high, unemployment registrations down...

But “strong US data is no longer enough to carry the dollar”, commented Esther Reichelt, an analyst at Commerzbank, who believes that “the positive effect of Joe Biden's stimulus plan and the speed of the vaccination campaign is already taken into account in the price of the dollar”.

As for the second investment plan of the U.S. president, focused on infrastructure, “we will have to wait until this summer to know to what extent it will be adopted, it is too vague for now to benefit the dollar,” she said.

“The clear message from the Fed (U.S. Central Bank) plays a role” in the dollar's lack of responsiveness to good U.S. news, judged Derek Halpenny, an analyst at MUFG.

Forex traders would find the dollar more attractive if rates were higher, but the Fed has promised at every opportunity to keep monetary policy loose to support the recovery, even if inflation climbs momentarily.

Looking forward in terms of fundamentals, the evolution of the EURUSD will depend very much on the evolution of US long rates. The pair has been rebounding since U.S. long rates started to stall. Further highs in the U.S. 10-year yield would likely rekindle demand for Treasuries from international investors, which would put pressure on the euro.

In addition to developments in Treasuries, the EURUSD will also be influenced by developments in the European health situation. If European governments were to extend health restrictions again, the euro would again come under pressure. Conversely, if the restrictions are not extended and the vaccination campaign continues to accelerate as scheduled, the euro is likely to continue to rise.

In the short term, the next catalysts to watch will be the releases of US industrial production and retail sales as well as the New York and Philadelphia federal district manufacturing indices this afternoon. The Chinese GDP release tonight will also be an important factor for EURUSD, as a better-than-expected release would support demand for the yuan, which would put pressure on the dollar as the greenback is the main counterpart of the yuan (and most currencies).

(Chart Source: Tradingview 18.04.2021)

From a technical perspective, the immediate resistance is clearly seen at the 1.20 mark. Traders will be paying close attention to the price action in the run-up to a potential fourth test of that level in the coming week. Should the euro bulls fail yet again to close above, sellers may see this as a sign of uncertainty and drive the rate back towards its lower bound target of 1.19. Traders may take advantage of this range-bound movement between 1.20 and 1.19 to determine short-term entry levels for buy/sell orders.

Support & Resistance Levels:

R3 1.21000

R2 1.20657

R1 1.12000

S1 1.19431

S2 1.18883

S3 1.18000

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.