Greenback Fueled by Optimistic Economic Data

EUR/USD Tests Support

by Bogdan Giulvezan

The U.S. economy is showing signs of recovery, as evidenced by rising Treasury yields and a Non-Farm Payrolls report that exceeded expectations last Friday: forecast 652K, actual 916K. The increase in jobs is likely to translate into a stronger greenback, although the dollar bulls are still eyeballing the services sector data due for release today, as well as the FOMC Minutes that will come out later in the week.

The US Dollar is currently trading near a 5-month high against the Euro, at 1.1751 and at 110.66 against the Yen, which is the strongest it’s been in almost a year. Volatility is likely to remain subdued today, as major markets are still closed in celebration of the Easter Holiday. The effect of the holiday was evident Friday as well, when the markets had a tame reaction to the NFP release, although the numbers were better than expected.

Key Events for the Week Ahead

The U.S. Services PMI will be the first release of the week, scheduled for Monday at 2:00 pm GMT. The PMI (Purchasing Managers’ Index) is a survey derived from the opinions of about 300 managers from the services sector, regarding overall business conditions in the said sector, and acts as a leading indicator of economic health. The forecast for today’s release is 58.3 (previous 55.3) and numbers above it indicate economic expansion, which is usually beneficial for the currency. Similar reports for Spain, Italy, France, and Germany will be released Wednesday, April 7 but the impact is usually lower.

The FOMC Meeting Minutes will be made public Wednesday at 6:00 pm GMT and the release is likely to have an impact on US Dollar pairs. The document contains the details of the latest interest rate meeting but also insights into the reasons that determined the decision. If the Minutes contain actual hints about future policy changes, the impact will be substantial.

The last notable event of the week comes Thursday, April 8 in the form of a speech delivered by Fed Chair Powell at a virtual seminar hosted by the International Monetary Fund. The topic will be the global economy and the scheduled time is 4:00 pm GMT. Audience questions are expected, but the impact cannot be predicted.

Chart Analysis – EUR/USD

Since the beginning of 2021, the greenback has been winning the battle against the Euro and the pair is currently testing the support around 1.1750, trading below the 50 periods Moving Average.

The overall bias is bullish for the US Dollar, thus bearish for the pair, and assuming that optimistic data keeps coming out of the United States, we will likely see a break of the current level at 1.1750 and a move towards 1.1615.

However, we must take into account the fact that the RSI is bouncing on its oversold level and the MACD is showing that momentum is fading, which means that moves to the upside are not out of the question. That being said, the bias will remain bearish as long as the pair stays below the 50 MA.