Published on May 26, 2023

Daily Analysis For EUR/USD 26-05-2023

EUR/USD Analysis

Key Points

• EUR/USD continues to linger at its lowest levels in a span of two months, having experienced a decline over the past three consecutive days.

• The Euro pair is facing downward pressure as a result of Germany's downward adjustment to its Q1 GDP, which outweighs any optimistic discussions from the European Central Bank (ECB) regarding a more aggressive stance on monetary policy.

• Furthermore, concerns regarding a potential US default, coupled with robust economic data from the United States, have allowed bearish sentiment to persist for EUR/USD, firmly keeping control in the hands of the sellers. As we anticipate the release of crucial data from the United States in the middle of the week, the Euro pair remains vulnerable to further downside moves.

Today's Scenario: - During the Asian session on Friday, EUR/USD bears maintain control as the pair hovers around 1.0720, near its lowest point in two months. The prevailing strength of the US Dollar, coupled with concerns about the Eurozone's economic outlook, reinforces the downward pressure on the Euro pair. Sellers remain optimistic after dominating the market for three consecutive days.

The final reading of Germany's Q1 2023 Gross Domestic Product (GDP) was revised downward to -0.3% quarter-on-quarter, deviating from the previously estimated 0.0%. German Finance Minister Christian Lindner expressed surprise at the negative signals conveyed by the GDP data.

Meanwhile, Bostjan Vasle, a member of the European Central Bank (ECB) Governing Council, emphasized the necessity of further interest rate hikes to bring inflation down to the target level in an interview with Slovenia's Delo newspaper. Conversely, ECB Vice President Luis de Guindos highlighted potential downside inflation risks stemming from banking tensions.

On the other hand, positive US data, combined with concerns about a US default, contributes to the cautious sentiment and supports the recent upswing in the US Dollar and bond yields. Key upcoming releases, such as Durable Goods Orders and the inflation measure, will provide additional support for the US Dollar compared to the Euro.

Speaking of data, the second estimate of Q1 2023 US Annualized Gross Domestic Product (GDP) was revised up to 1.3% from the initial forecast of 1.0%. Additionally, the Chicago Fed National Activity Index for April improved to 0.07, surpassing the previous reading of -0.37 and the market estimate of -0.02. Similarly, the Kansas City Fed Manufacturing Activity for May showed improvement, recording -2 compared to the previous reading of -21 and the estimated -11. It is worth mentioning that US Pending Home Sales for April displayed a year-on-year improvement but a month-on-month decline, while the preliminary readings of Core Personal Consumption Expenditures indicated a rise to 5.0% from the previous 4.9%.

It is important to note that concerns about a potential US default also contribute to the dominance of the US Dollar. US House Speaker Kevin McCarthy recently announced the lack of an agreement on the debt deal, acknowledging ongoing negotiations by stating, "It's hard. But we're working and we're going to continue to work until we get this done."

Against this backdrop, the US Dollar Index (DXY) reached its highest level in 10 weeks, touching 104.20 most recently. Furthermore, the yields of US 10-year and two-year Treasury bonds climbed to levels not seen since early March, approximately 3.82% and 4.54%, respectively. Although Wall Street closed with mixed results, S&P500 Futures show a slight decline at present.

Looking ahead, short-term movements in EUR/USD will be influenced by risk factors. Additionally, the scheduled release of April's US Durable Goods Orders and Core Personal Consumption Expenditure (PCE) Price Index, which is the Federal Reserve's preferred inflation gauge, will be significant determinants.

Diagram of EUR/USD

Economic Events: -

GMT	Event	Impact	Currency
00:30	(Japan) Tokyo Core CPI YoY	Low	JPY
00:30	(Japan) Tokyo CPI YoY	Low	JPY
00:30	(Japan) Tokyo CPI Ex Food and Energy YoY	Low	JPY
02:30	(Australia) Retail Sales MoM	High	AUD
04:35	(Japan) 3-Month Bill Auction	Low	JPY
06:00	(Japan) Leading Economic Index	Low	JPY
06:00	(Japan) Coincident Index	Low	JPY
07:00	(Lithuania) Retail Sales MoM	Low	EUR
07:00	(Lithuania) Retail Sales YoY	Low	EUR
07:00	(United Kingdom) Retail Sales ex Fuel MoM	High	GBP
07:00	(United Kingdom) Retail Sales ex Fuel YoY	High	GBP
07:00	(United Kingdom) Retail Sales YoY	High	GBP
07:00	(United Kingdom) Retail Sales MoM	High	GBP
07:30	(Switzerland) Non Farm Payrolls	Low	CHF
07:45	(France) Consumer Confidence	Medium	EUR
08:15	(Euro Area) ECB Enria Speech	Low	EUR
08:40	(Euro Area) ECB Lane Speech	Medium	EUR
09:00	(Italy) Consumer Confidence	Medium	EUR
09:00	(Italy) Business Confidence	Medium	EUR
09:00	(Austria) Bank Austria Manufacturing PMI	High	EUR
10:10	(Italy) 6-Month BOT Auction	Low	EUR
11:00	(France) Jobseekers Total	Low	EUR
11:00	(France) Unemployment Benefit Claims	Medium	EUR
11:00	(Luxembourg) Balance of Trade	Low	EUR
13:30	(Canada) Wholesale Sales MoM	Low	CAD
13:30	(United States) Goods Trade Balance	High	USD
13:30	(United States) Wholesale Inventories MoM	Medium	USD
13:30	(United States) Core PCE Price Index MoM	High	USD
13:30	(United States) Core PCE Price Index YoY	Low	USD
13:30	(United States) PCE Price Index MoM	Medium	USD
13:30	(United States) PCE Price Index YoY	Medium	USD
13:30	(United States) Personal Spending MoM	High	USD
13:30	(United States) Personal Income MoM	High	USD
13:30	(United States) Retail Inventories Ex Autos MoM	Medium	USD
13:30	(United States) Durable Goods Orders Ex Transp MoM	High	USD
13:30	(United States) Non Defense Goods Orders Ex Air	Low	USD
13:30	(United States) Durable Goods Orders MoM	High	USD
13:30	(United States) Durable Goods Orders ex Defense MoM	High	USD
15:00	(United States) Michigan Consumer Expectations	Low	USD
15:00	(United States) Michigan Current Conditions	Low	USD
15:00	(United States) Michigan 5 Year Inflation Expectations	Low	USD
15:00	(United States) Michigan Consumer Sentiment	High	USD
15:00	(United States) Michigan Inflation Expectations	Low	USD
16:00	(Canada) Budget Balance	Low	CAD
18:00	(United States) Baker Hughes Oil Rig Count	Low	USD
18:00	(United States) Baker Hughes Total Rig Count	Low	USD

Buy Scenario: - EUR/USD recovered slightly during early Friday morning in Europe, consolidating its losses for the week. The major currency pair is currently trading near 1.0735, marking its first daily gains in four days and finding support from a rising trend line that has been in place for the past six months.

The oversold condition of the Relative Strength Index (RSI) (14) provides some strength to the corrective bounce in EUR/USD. However, the bearish signals from the Moving Average Convergence Divergence (MACD) and a downward-sloping resistance line from early May, which is currently around 1.0765, pose challenges for buyers of the Euro pair.

Even if the buyers manage to surpass the 1.0765 barrier, the 100-day Exponential Moving Average (EMA) at approximately 1.0780 could act as the final defense for the bearish sentiment before potentially targeting the mid-month high around 1.0900.

It is important to note that unless the EUR/USD crosses the psychological level of 1.1000, the overall outlook remains bearish, till we do not advise to buy EUR/USD currency pair.

Sell Scenario: - On the downside, the aforementioned support trend line and the 200-day EMA near 1.0710 and 1.0685 respectively, limit the short-term downside potential for EUR/USD.

However, it cannot be ruled out that the pair may experience a decline towards the yearly low reached in March around 1.0515.

In summary, despite the recent corrective bounce, EUR/USD remains primarily in bearish territory. Till then we do not advise selling EUR/USD.

Support and Resistance Level: -