EUR/USD shows strength in the early day although the pair faces resistance from an area that triggered a notable turn in late April.
EUR/USD shot sharply higher last week, gaining nearly 2% on a week over week basis. Despite this strength, the pair closed the month of April with a small loss. It is now trading around the same levels that triggered a sharp turn lower in late April.
The pair has been boosted as of late by expectations for more easing in Europe and a broadly weaker dollar.
The greenback has come under pressure as the markets are showing a strong appetite for risk, leading to a decline in the US dollar index (DXY) to lows not seen since mid-March, which is around the same time the stock markets bottomed.
Easing expectations in Europe have also been a big driver for the single currency. The European Commission proposed a plan last Wednesday to raise 750 billion euros to help member states hit hard economically by the Coronavirus.
On Thursday, the European Central Bank is scheduled to meet and analysts expect policymakers will expand their easing efforts by increasing the size of their bond-purchasing plan, in response to the COVID-19 crisis.
IHS Markit released its latest data from surveyed purchase managers in the manufacturing industry. The report showed a slight improvement following the sharp decline in activity in April as economies slowly start to lift restrictions.
Nevertheless, an unprecedented fall in GDP is expected for the second quarter as well as downward pressure on price inflation as manufacturers reduce prices on inventory to clear out unsold stock.
There has been a slight slowing of momentum in EUR/USD with resistance at 1.1144 in play, indicative by the candlestick formations on a 4-hour chart.
The level could prove to be a hurdle in the session ahead and may trigger a pullback after an impressive rally last week.
At the same time, the trend for EUR/USD is clearly to the upside and the momentum has been strong. This stands to keep the pair bid on near-term declines.
Support for the session ahead is seen at 1.1081. In the event the pair clears above 1.1144, the next level of upside interest falls at 1.1215.
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Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.