Will The Euro Continue Its Rally?
The European single currency leaped last week after the release of lackluster U.S. reports that raised concerns the weak growth pace would continue in the second quarter.
The EURUSD rose for a fifth straight session the previous week to add more than 8 percent throughout this period on expectations the Fed will not hike interest rates this summer.
While there is no major data releases on the economic Calendar for Monday, tomorrow eyes will focus on German investor confidence for the month of May.
The reading may signal its second straight drop in May to 48.9 from 53.3, amidst concerns Greece’s debt dilemma may be weighing on the euro area’s biggest economy.
What Are The Reasons Behind The Euro’s Rally?
-The release of downbeat data from the U.S., which raised speculations the Fed, would push back its interest rate hike.
-Improvement in eurozone growth prospects, as the latest data pointed to an acceleration in the expansion pace to 0.4 percent in the first quarter, despite the slowdown in German growth.
-Progress in inflation after CPI for the year ended April showed a stall in prices, ending a four-month run of deflation. In general, the global inflation outlook has improved with the recovery in oil prices.
-The rise in German 10-year bond yields have attracted some investors to concern their money into euros to purchase those bonds.
-Relative confidence after Greece managed to transfer an interest payment of 750 million euros to the IMF.
Factors To Weigh On Euro
ECB President Mario Draghi said on May 14, the bank will continue to use its 1.1tn stimulus program “as long as needed,” or, in other words, until the ECB is confident they inflation is moving smoothly towards target.
-This means the main attention will remain on inflation data, as the ECB has linked its QE program to reaching inflation objective.
-Any growth related investors will carefully monitor data. Euro area flash PMI manufacturing and services for May will be released on Thursday.
-Movements in the European bond yields market, in comparison to U.S. treasuries, may continue to affect the euro.
-The latest update from Greece, especially as impasse between the current Greek government and European officials remain unresolved. Greece aims to unlock an installment of €7.2bn to repay debt maturing the coming months, noting that it owes the IMF a total of €9.7bn this year.
-The pair is meanwhile trading around 1.1398 after touching a low of 1.1365, while faced resistance at the session’s high of 1.1448.
-For this week, EURUSD is likely to face key resistance at 1.1563 and key support at 1.1230.
-The pair may resume its rally as long as it remains above this week’s pivot point located at 1.1345.
-The Parabolic SAR still signals the trending up, with no dot pointing to a reversal in the bullish direction.
-The RSI 14 momentum indicator has faced some pressure as it approached the 70 line, but it is still below the overbought areas.