EURUSD rallies for May Day

Tony Sycmore
By :  ,  Market Analyst

Just in time to celebrate today’s Labour Day public holidays in countries including France, Germany and Italy, the sagging EURUSD staged a brave rally to close the session back above 1.1200. The recovery in the EURUSD, primarily the result of a cluster of Eurozone economic data overnight that either beat expectations or confirmed some stabilisation.

The key data highlights were the flash Eurozone advanced Q1 GDP which printed at 0.4% QoQ and boosted the YoY growth rate to 1.2%. German harmonised CPI was 0.5ppt higher than consensus at 1.0% for April, taking the YoY rate to a relatively punch 2.1%. Topping the session off was better than expected German, and Eurozone unemployment data as the Eurozone unemployment rate fell to 7.7%, its lowest rate since October 2008.

Also aiding sentiment was the Spanish elections held over the weekend. Current Prime Minister and former economics professor Pedro Sanchez’s Socialist Party increased the number of seats it holds in parliament. While falling short of a majority, the result hailed as a victory over the populist right and a victory for the EU.

As we highlighted in yesterday’s note “USD – pausing or failing?” the market has built a significant long U.S. dollar position against a handful of core currencies. Due to the persistently weak Eurozone data of late, the EUR has been one of the market’s favourites to short against the U.S. dollar.

The funds and traders that sit short the EURUSD will not welcome the sudden emergence of firmer Eurozone data or the fact that last weeks move to 1.1109 is starting to resemble yet another false break. However, with U.S ISM manufacturing PMI, FOMC and employment data still to be released this week, they are unlikely to give up on EURUSD shorts just yet.  

Much like we are watching the price action in the U.S. dollar index, the DXY as it tests horizontal support 97.70/50, the equivalent level for the EURUSD is 1.1230/50. Should the EURUSD break and register a daily close above resistance 1.1230/50 it is likely to be the trigger for a short covering rally in the EURUSD back towards 1.1400 and a deeper pullback in the DXY.

EURUSD rallies for May Day

Source Tradingview. The figures stated are as of the 1st of May 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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Related tags: EUR USD Forex

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