EUR/USD Stages a Rebound as the US Dollar Deflates

  • EURUSD
    (${instrument.percentChange}%)

EUR/USD Analysis

The pair comes from a negative week, during which it set two-year lows and the current one started on the back foot as well. Today however, it stages a relief rally, after having narrowly avoided fresh lows yesterday.

As such, we can see a test of 1.0919 and the 38.2% Fibonacci of the last leg down (form late-March, to last week's lows), but it will need daily closes above the EMA200 (at around 1.0970-80) to pause the downward bias.

However, we remain cautious at this stage for such moves and the upside has more roadblocks, as the ascending trendline form the 2022 highs follows at mid-1.1000s. The monetary policy differential between the European Central Bank and its US counterpart is unfavorable for the pair, as the Fed gears up for another rate hike, potentially of 50 basis points.

The broader downward trend remains intact and the currency pair has not escaped the risk of fresh two-year lows (1.0756), but 1.0635 looks distant.

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Despite the upbeat mood in markets today, there are still multiple risk factors that could sour sentiment and contain the common currency's rebound.

The International Monetary Fund (IMF) slashed its 2022 World Growth forecast yesterday, to 3.6%, from 4.4% in the January projections. 2021 growth was estimated at 6.1% in 2021 (from 5.9% in January). Euro Area GDP was downgraded to 2.8% for 2022, from 3.9% in January [1]. A day earlier, the World Bank's President had announced that the institution is reducing its 2022 global growth projection to 3.2%, from 4.1% before [2].

China remains a source of worry in regards to its Covid-19 situation, especially in Shanghai which reported seven deaths for April 19, the third straight day of deaths [3]. The war in Ukraine remains in the spotlight, with president Zelenskyy asking for more weapons, saying that "If we had access to all the weapons we need, which our partners have and which are comparable to the weapons used by the Russian Federation, we would have already ended this war" [4].

Markets now turn to Eurozone's final CPI Inflation for March on Thursday, with the preliminary figure having shown a rise to 7.5%. Moreover, the presidents of the ECB and the Fed are both on tap, on the same day.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 20 Apr 2022 https://www.imf.org/en/Publications/WEO/Issues/2022/04/19/world-economic-outlook-april-2022

2

Retrieved 20 Apr 2022 https://www.worldbank.org/en/news/speech/2022/04/18/spring-meetings-2022-media-roundtable-opening-remarks-by-world-bank-group-president-david-malpass

3

Retrieved 20 Apr 2022 https://english.www.gov.cn/statecouncil/ministries/202204/20/content_WS625fa0efc6d02e5335329ae5.html

4

Retrieved 02 Jul 2022 https://www.president.gov.ua/en/news/yaksho-nashi-partneri-mayut-potribnu-ukrayini-zbroyu-yihnij-74417

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