EUR/USD: Higher as Euro zone’s Economic Recovery Gained Momentum in April

Highlights

• Euro gained due to higher-than-expected purchasing manager indices
• Euro’s appeal as an investment option increased
• Euro zone’s economic recovery gained momentum in April

Overview

On Friday, the Euro gained ground against the U.S. Dollar due to an unexpected resurgence in the Euro Zone economy during April. The purchasing manager indices, were higher than anticipated, indicating a stronger economic performance in the Euro Area.

The EUR/USD settled at 1.0992, up 0.0021 or +0.19%. The Invesco CurrencyShares Euro Trust ETF (FXE) finished at $101.48, up +0.24 or +0.24%.

Euro More Attractive as Growth Differential Narrows and Safe Haven Demand Falls

The projected growth differential between the Euro and the dollar narrowed slightly towards the end of the Friday session. This makes the Euro a more appealing investment option.

Investors are preparing for the worldwide monetary tightening phase to conclude soon. This is leading to reduced demand for traditional safe havens. Evidence of this can be seen in the sustained reduction in implied volatility across most asset classes.

Euro Zone’s Economic Recovery Surges in April

According to surveys conducted by S&P Global, the euro zone’s economic recovery unexpectedly gained momentum in April due to a surge in the services sector, which offset a worsening situation in manufacturing.

The HCOB’s flash Composite Purchasing Managers’ Index (PMI) rose to 54.4 in April, exceeding expectations. And indicating an improvement in the overall economic health. The services industry PMI rose to 56.6 in April, surpassing the anticipated decline.

However, the manufacturing sector’s PMI fell to 45.5, its lowest since the pandemic’s onset. Traders are expecting the ECB to raise interest rates at its upcoming meeting on May 4, with a 25-basis-point increase likely.

Technical Analysis

The EUR/USD edged toward resistance on Friday, but still finished lower for the week. The key level controlling the near-term direction of the common currency is 1.1009.

A sustained move over R1 at 1.1009 will indicate the presence of buyers.  If this generates enough upside momentum over the near-term, the next target will become R2 at 1.1177.

A sustained move under R1, however, will indicate that sellers are coming in to defend this level.

For a look at all of today’s economic events, check out our economic calendar.