EUR/USD OUTLOOK:
- Euro strengthens against the dollar as disappointing U.S. economic data exerts downward pressure on Treasury yields
- Hawkish commentary from ECB officials also supports the common currency
- From a technical standpoint, EUR/USD has encountered support at a key trendline, paving the way for prices to resume their journey higher
Most Read: EUR/USD Unchanged After ECB Minutes, Heavy Data Calendar Next Week
EUR/USD rebounded on Thursday after a subdued performance in the previous session, but gains were limited amid broadly cautious market sentiment. In afternoon trading in New York, the euro was moderately outpacing the U.S. dollar, up about 0.15% to 1.0970 in a context of falling U.S. treasury yields following disappointing U.S. economic reports.
Earlier in the day, data released by the U.S. Labor Department showed that the number of Americans filing for unemployment insurance rose to 245,000 in the week ended April 15, versus 240,000 forecast, pushing recurring jobless claims to 1.87 million, the highest level since November 2021, a sign that people are struggling to find new work quickly due to the slowdown in hiring.
March existing home sales also underwhelmed expectations, clocking in at 4.44 million, compared to an estimate of 4.5 million. Taken together, today's two reports suggest that the economy is buckling under the weight of the Fed's aggressive hiking cycle and could be heading toward a recession – a situation that could give policymakers cover to pause their tightening campaign in the near term.
US ECONOMIC DATA AT A GLANCE
Source: DailyFX Economic Calendar
Elsewhere, hawkish commentary from the ECB added additional support for the euro, with President Lagarde indicating that the Governing Council “still has a bit of way to go” to return inflation to the 2.0% target. These remarks, along with those from other officials in recent days, signal that the central bank will continue raising borrowing costs at upcoming meetings.
With the ECB seen raising rates a few more times through the summer while the FOMC stays on hold, there is scope for EUR/USD to rise further. However, the bullish scenario for the euro hinges on sentiment remaining stable, otherwise, its benign outlook could change for the worse quickly, with the U.S. dollar better positioned to outperform in a risk-off environment.
| Change in | Longs | Shorts | OI |
| Daily | -8% | -11% | -9% |
| Weekly | -15% | 25% | -4% |
EUR/USD TECHNICAL ANALYSIS
EUR/USD has managed to bounce off trendline support at 1.0935, with bulls wrestling control from bears for now, though bullish conviction appears to be weakening after the strong rally over the past four weeks or so. This could pave the way for a period of consolidation and range trading prior to the next leg higher.
In terms of key tech levels to watch, initial support rests at 1.0935, followed by 1.0875. Below that, the next area to focus on lies at the psychological 1.0800 mark. Looking higher, to first resistance to consider appears at the 2023 highs near 1.1075 and 1.1170 thereafter.
EUR/USD TECHNICAL CHART
