EUR/USD Daily Forecast – Euro Bounces Higher Despite Weak GDP Figures

EUR/USD turned sharply lower this week following Fed Chair Powell’s speech and briefly traded at a fresh one-week low yesterday as the dollar continued to strengthen.

The pair has pared some of the recent losses in early trading on Friday on the back of mixed economic reports from the euro area.

GDP growth was reported to decline 3.8% in the first quarter of the year which was the sharpest contraction since the data started being reported in 1995. The German economy shrank 2.2% which is the largest decline in growth in more than a decade.

Not all of the economic reports from the euro area were grim. Employment growth was down 0.2% in the first quarter. While this figure marks the largest decline in almost seven years, it was well above the analyst estimate for a decline of 2%.

The US will release retail sales figures for April later in the day. Analysts are forecasting a 12% drop in sales after an 8.7% decline in March.

While the retail sales report stands to have an impact on the exchange rate, it is more likely to do so if there is a significant deviation from expectations. This is based on the pattern of muted reactions to recent US data despite most reports showing the economy deteriorating at a record pace.

The exchange rate is more likely to be influenced by speculation over which central bank of government will ease policy next.

Technical Analysis

EUR/USD has held within a range this week while buyers have supported the pair on dips towards the 1.0800 area.

This is seen as a critical inflection point for the pair as there is a rising trendline in play to create a bit of a confluence. The trendline originates from the March low.

In the event EUR/USD fails to hold above support, the next area of interest to the downside falls at 1.0727 which marks the April Low.

Near-term resistance for the pair is seen at 1.0879 as the level held the pair lower on a rally earlier in the week.

Bottom Line

• EUR/USD remains range bound with buyers quick to jump in near the 1.0800 level.
• US retail sales figures will be released next. The data may not have a significant impact on the exchange rate unless there is a notable deviation from analyst expectations.