Market Overview

12 May 2021

The Euro is Full of Optimism

The Euro’s upside trend could be determined by several positive factors for the single European currency. The Euro is rising amid rising positive expectations in the markets and speeding up of the vaccination process. These factors are reflected in the German ZEW economic sentiment report that was published on Tuesday. The reading came out extremely positive at 84.2 that is far above 72.0 points expected and is a record since March 2000.

On the other hand, the Euro is seen to be being pushed by the weakness of the U.S. Dollar that came under pressure as investors are looking for additional yields in risky assets. Disappointing April labor market data in the U.S. that fell to 266,000 new jobs vs 978,000 expected and 770,000 registered in March seemingly convinced investors that ultra-soft monetary policy from the Federal Reserve (the Fed) could last for a long period. Moreover, recovery in the labour market is more important for the Fed than inflation, it can be assumed by the Fed’s statements. So, April annualized CPI readings that came out at astonishing 4.2% and Core CPI at 3% are less important for the Fed, and the market consequently, and would hardly affect Fed’s monetary decisions in the coming months.,. It may be worthwhile to remember that the Fed and its Chairman, Jerome Powell, have clearly stated that they will be reluctant to tighten monetary policy when inflation goes above 2%, and also that it will not remain significantly at this level for a prolonged period of time.

So, in this framework of decision-making higher inflation may be reviewed as an extra engine of economic growth and a factor for additional job creation.

All the above factors have seen to favour the Euro, boosting it from 1.1990 to above 1.2150 earlier this week. The technical picture suggests that the Euro may reach February highs at 1.2243 as a next target if the uptrend is to be sustained. However, this upside target doesn’t mean that it could be reached without a correction to 1.2000 on higher inflation readings in the United States. But, it is very unlikely to reverse the current uptrend for the Euro.

In case of the correction, lower levels of the EUR/USD close to 1.2000 may become attractive for buy positions.

 

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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