Buyers Lift EUR/USD Following Thursday’s Setback

EUR/USD eased back from the recent highs during Thursday’s session, as the pair declined to within reach of trendline support shown on the daily chart. However, the move back to this level enticed buyers and EUR/USD is now moving higher and currently testing the rally high at 1.1172 established during the Asian session on Thursday. At present, EUR/USD is at new session highs, holding near 1.1159, a gain of 0.53% over Thursday’s North American close.

Thursday’s setback occurred as the US dollar index (DXY) took a breather from its recent correction and rebounded from its newly established downtrend low at the 97.33. DXY was boosted by a round of positive economic data out of the US.

Specifically, initial jobless claims declined 4,000 to 232,000 in the week ending May 13th from 236,000 previously. Consensus forecasts called for a small increase to about 240,000 for the week. The four-week moving average declined to 240,750 from 243,000 previously. Continuing claims for the week ending May 6th declined by 22,000 to 1.898 million, which is the lowest level since November 5, 1988. Given that this report covered the period in which the employment survey was conducted for the May employment report, it will generate expectations for another month of strong nonfarm payroll growth in the US.

The Philadelphia Fed Index was also reported Thursday, coming in at 38.3 for May, versus consensus at 18.5, and a reading at 22.0 in April. The dividing line between growth and contraction for this regional manufacturing survey is 0.0. The May reading is the second-highest reading for the Index since January 1984. The report indicates that firms continue to expect growth.

Finally, it was reported that the Conference Board’s Leading Economic Index increased 0.3% in April, versus consensus at +0.4% and following a downwardly revised 0.3% increase (from 0.4%) in March. April marked the eighth straight increase for the leading index. The report indicates that strengths among the leading indicators have remained widespread.

This strong data helped support the dollar and boosted the prospects for an interest rate increase in the US at the June FOMC meeting. At Thursday’s close, Fed funds futures were pricing in a 73.8% probability of a rate hike, up from 64.6% the session prior.

However, DXY has come back under pressure in today’s session and DXY’s broader trend remains firmly bearish, thus continued gains are expected in EUR/USD.

During Wednesday’s session, EUR/USD cleared resistance at the November 4th high at 1.1142, leaving the next level to watch at the November 9th spike high near 1.1300.

On Wednesday, EUR/USD rallied in response to the latest Eurozone inflation data. The final Eurozone CPI inflation reading for April was confirmed at 1.9%, in line with the flash rate, and compared to a rate of 1.5% in March. The core inflation rate was also confirmed at 1.2% from 0.7% previously. Both figures were in-line with consensus forecasts. The core rate was above the 0.7% reading recorded a year earlier and the strongest reading since 2013. The inflation data reported for May will be important ahead of the June European Central Bank (ECB) meeting. If there is no significant decline in inflation in the next report, the ECB may be pressured to signal a shift in monetary policy, which would be supportive to the Euro. A sharp dip in the inflation rate would reinforce the ECB’s current caution over monetary policy.

There were no economic releases out of the Eurozone on Thursday. Today, German PPI was released at 02:00 ET. The month-over-month figure for April came in at 0.4%, better than consensus forecasts at 0.2% and a prior reading at 0.0%. the year-over-year figure was reported at 3.4%, also better than the expected reading at 3.2% and the prior reading at 3.1%. EUR/USD rose to new session highs upon the release of the figures, moving from 1.1110 to the 1.1125 level.

The bias remained to the upside heading into the release of Eurozone Current Account figures. The Eurozone’s adjusted Current Account surplus narrowed slightly in March but continued to hover near all-time highs, data from the European Central Bank showed today at 04:00 ET. The seasonally and working-day adjusted surplus eased to 34.1 billion euros from 37.8 billion a month earlier, when it was at the highest level on record for the Eurozone. Consensus estimates called for a surplus of 32.3 billion euros. EUR/USD experienced little immediate reaction to the data, but has subsequently advanced to new session highs.

Later today, at 10:00 ET, Eurozone Consumer Confidence, flash reading for May, will be released. The figure is expected at -3.0 from a prior reading at -3.6. In addition, the ECB’s Praet is currently speaking, while the ECB’s Constancio will speak at 08:00 ET.

In the US, there are no economic releases on today’s calendar. However, the Fed’s Bullard is scheduled to speak at 09:15 ET. Bullard, the President of the Federal Reserve Bank of St. Louis, is a non-voting member of the FOMC. However, he will speak on the US economy and monetary policy and could give clues as to the Fed’s next move. Federal Reserve Bank of San Francisco President Williams will speak in the afternoon. He also is a non-voting member of the FOMC.

At 15:30 ET, the latest Commitment of Traders report from the Commodity Futures Trading Commission will be released. The latest report, with data as of May 9th, showed a shift in net positioning by large speculators from the short side to the long side, by 22,339 contracts. This is the first net long position held by large speculators since early May 2014.

On Monday of next week, both the US and the Eurozone economic calendars are void of releases.

Heading into the weekend, support for EUR/USD is at the rising trendline shown on the daily chart which, today, comes in at approximately the 1.1070 level. This level is expected to remain intact and periods of weakness in EUR/USD appear best used as buying opportunities.

EUR/USD Daily Chart

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Tracy L. Morganthall, CMT, has been a Technical Market Analyst for more than 20 years. She has experience analyzing and producing reports on equities, both domestic and international markets, as well as Forex and commodities. She attended Trenton State College in Trenton, New Jersey, earning a Bachelor's in Finance.