Daily Market Recap - EURUSD Weekly Outlook

The Euro ended the week on a lower note despite a smaller than expected decline in Eurozone GDP, a higher than expected inflation rate, and a falling unemployment rate. The EUR/USD was down 0.84% by market close on Friday.

In macro announcements, Eurostat's first estimate showed a 0.6% decline in the Euro-Zone economy in the first quarter, slightly less than the forecast of a 0.7% contraction.

Nevertheless, it is worth noting that France was the only country among the four largest economies in the eurozone to grow in the first quarter. France's GDP grew by 0.4% while Germany's fell by 1.7%, Italy's by 0.4%, and Spain's by 0.5%.

Obviously, health restrictions explain this new contraction of the European economies. The acceleration of the vaccination campaign and the gradual reopening of the European economies should allow the Eurozone to rebound significantly from the current quarter and consequently should provide a boost to the Euro.

At the same time, the Eurozone unemployment rate came in lower at 8.1% against consensus expectations of an increase to 8.3% and CPI inflation came in at a two-year high of 1.6% year-on-year, but the market seems to have ignored these positive surprises.

The market instead appeared to have focused on the US macro data with all major releases beating expectations. The PCE price index increased 2.3%, personal spending rose by 4.2%, and the Michigan consumer confidence index & Chicago PMI both exceeded the consensus at 72.1 and 88.3 respectively.

From a technical perspective, the EUR/USD has been showing signs of forming a bearish “evening star” reversal pattern in Japanese candlestick terminology. With the EUR/USD ending the week below 1.21, this pattern may well have been validated, paving the way for a retracement of the recent bullish rally. A return to 1.20 is very much on the table for the coming sessions.

(Chart Source: Tradingview 02.05.2021)

That said, if the EUR/USD ends up rebounding off of the 1.20 close on Monday and manages to claw back above 1.21, the outlook will continue to be bullish. In this scenario, the resistance at 1.22 should be watched. Traders may look to conservatively short the pair towards the 1.20 mark and observe price action in the run-up as it may present an opportunity to enter into a long position.

Support & Resistance Levels:

R3 1.23495

R2 1.22432

R1 1.20635

S1 1.20000

S2 1.19417

S3 1.18355

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.