EURUSD testing 1.2000 on the week of the ECB meeting

Hi Everyone,

The European Central Bank is in the spotlight this week with their monetary policy statement and interest rate decision to be published on Thursday. While benchmark interest rate is expected to remain at 0%, market participants are eager to listen to the ECB President Lagarde’s comments on the economic recovery, at the back of disastrous vaccine rollout in the EU. The Euro Area is approximately 2 months behind the U.S. in terms of vaccinations, currently struggling with the third wave of infections and lockdowns in a number of key European countries. The markets, however, seem to have faith in Euro Area recovery with EURUSD recovering from swing lows in March to current 1.1960 levels. The next key level 1.2000 is only a few basis points away and likely to be tested during this week.

The ECB is expected to continue on its current path of asset purchases, absorbing most of the bonds issued by the EU member states. We witnessed a record issuance of EUR 370 billion worth of bonds in Q1 2021, signaling that the annual total may exceed 2020 peak level of EUR 1.2 trillion. Also, the maturities of recent issuances are at a record with 15% of total issued debt maturing in +25 years while 8% have maturity longer than 31 years. This extension in maturity is expected to push up long EUR yields and steepen the yield curves, supporting EUR even further.

U.S. retail sales data exploded last week with a monthly gain of +9.8%, the second largest print ever. All sectors were up, but the largest gains were in hobby sectors (sporting goods, hobby and musical instruments, bookstores) that expanded +23.5% on a month-on-month basis, as well as in clothing and accessories stores (+18.3%). Groceries and alcohol stores sales saw the slowest growth of 0.7%, whilst health and personal care store sales grew +5.7%. Retail sales data reflected the re-opening of the U.S. economy thanks to successful vaccine rollout, but also direct stimulus payments from the federal government to individuals.

People are becoming increasingly mobile and going out once again, which is evident from increasing gasoline sales (+10.9% in March, after positive February and January data) but also from a jump in clothing stores (+18.3% in March), restaurant and bars sales (+13.4% in March, after negative February and January data). Stimulus payments likely contributed to the magnitude of the expansion, bolstering sectors that have seen a decelerating pace of growth, such as electronics (+10.5%) and furniture stores (+5.9%).

With such strong retail data, we can be rather certain that there will be no additional stimulus directed to individuals, which begs the question about the potential source of growth in the American economy. Consumers are likely to pull back from the current spending levels, although we might see an increase in services related spending once the economy fully re-opens. Savings rate is still elevated, near 13.6% as of February 2021, and likely to tick higher in March as part of the stimulus which is likely to be put aside for rainy days.

S&P 500 was up 1.37% to 4185.48 to all-time highs, while Nasdaq-100 gained 1.42% to 14014.91 points. Russell 2000, representing U.S. small and medium companies, rose 0.86%. The dollar index DXY lost -0.68%, supporting gold to gain +1.89%. Oil futures rose 6.52% at the back of weaker dollar, shrinking U.S. oil inventories and upgraded outlook issued by OPEC.

Have a great trading week ahead!

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In The Spotlight

DateCurrencyEventPrevious Consensus 
TuesdayCNYPBoC Interest Rate Decision3.85%
TuesdayAUDRBA Meeting Minutes
TuesdayGBPUnemployment Rate (3M) – February5.0%5.2%
TuesdayNZDCPI (YoY) – Q11.4%1.0%
WednesdayGBPCPI (YoY) – March0.4%0.7%
WednesdayGBPGovernor Bailey speech
WednesdayCADCPI Core (YoY) – March1.1%2.3%
WednesdayCADBoC Monetary Policy Statement and Interest Rate Decision0.25%0.25%
ThursdayEURECB Monetary Policy Statement and Interest Rate Decision0.0%0.0%
FridayEURGerman Markit Manufacturing PMI (Preliminary) – April66.665.9
FridayEUREuro Area Markit PMI Composite (Preliminary) – April53.252.8
FridayGBPMarket Services PMI (Preliminary) – April56.3
FridayUSDMarket Services PMI (Preliminary) – April60.461.5
FridayUSDNew Home Sales (MoM) – Mar0.775 *0.88 *

* In USD millions

• German, Euro Area, U.K. and U.S. Preliminary PMI
Purchasing Managers’ Index measures the sentiment for business activity in the country. This is survey based and considered as a leading indicator. Higher than expected print is generally bullish for the currency, while lower than expected is bearish.

• U.S. New Home Sales
Housing and related services account for around 15% of U.S. GDP, making new homes sales an important indicator about the health of the economy. New home sales reached 13-year high during the second half of 2020 but higher mortgage rates are expected to dampen the pace of expansion. Higher than expected print is generally bullish for USD, while lower than expected is bearish.

Market Sentiment

EURUSD is trending higher with momentum turning bullish on the daily chart both short- and long-term. Price is currently finding support near 50-day simple moving average (SMA) near 1.19560 which is also the lower regression band support level. Only 100-day SMA is currently above the price near 1.20510. ADX of 22 does not signal that there is energy in the momentum but Stochastic of 92 signals extended price action to the upside. Strong support has formed near current price levels of 1.19560, meaning that price is likely to move sideways, before taking a step higher. Resistance levels are near 1.20000 and 1.20275, while support is near 1.19575 and 1.19360.

Resistance: 1.12000
Support: 1.19575

GBPUSD is about to test 50-day simple moving average near 1.38620, whilst trending higher. Momentum indicators support bullish price action, although short-term moving averages are roped with little air between them. 200-day SMA sits below the price at 1.33570, indicating that long-term momentum is bullish. The energy in the trend seems weak based on ADX and DMI indicators. Resistance levels are near 1.38625 and 1.38865, while support is near 1.38175 and 1.37965.

Resistance: 1.38625
Support: 1.38175

NZDUSD is near testing 50-day simple moving average (SMA) near 0.71525. Momentum indicators have turned bullish, supporting upward trend. Price is currently overbought with little energy in the trend, signaling that sideways movement or a pullback may be due. Resistance levels are near 0.71525 and 0.71765, while support is near 0.71165 and 0.70845.

Resistance: 0.71525
Support: 0.71165

XAUUSD has recovered to February 2021 levels, testing currently upper Bollinger Band resistance level. Momentum indicators signal bullish trend, although 200-day SMA is still above the price near 1,857.05. ADX of 23 signals there is little energy in the trend, and Stochastic of 87 indicates that price action is overbought. With strong resistance at upper BB band stopping the price, sideways action or a pullback seem likely. Resistance levels are near 1,779.31 and 1,792.02. Support is near 1,769.55 and 1,755.36.

Resistance: 1,779.31
Support: 1,792.02

Kaia Parv, CFA, is an experienced Portfolio and Investment Manager with exposure to both public and private markets. Before joining FXPRIMUS, Kaia was a Senior Investment Associate at EFA Group and a Vice President in Bank of America Merrill Lynch.

Any opinions, news, research, analyses, prices or other information contained here are provided as general market commentary and do not constitute investment advice. FXPRIMUS does not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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