Euro traded upwards last Friday due to strong economic reports from the EU. Apparently, European countries are recovering, gradually adapting to the prevailing conditions. And in the near future, once quarantine measures are lifted, GDP is expected to spike.
With regards to the epidemiological situation, the World Health Organization (WHO) said COVID-19 cases are on the rise in all regions except Europe. Hence, authorities are planning to launch a new vaccination campaign in order to reach a larger part of the population. Of course, this news increased demand for risky assets, pushing the euro up from a four-month low last March. Price hit $ 1.20 and even moved upwards a bit, which maintained the upward potential in EUR / USD. However, there are many factors that could turn the situation around.
One example is increased output in the US, which should reach pre-pandemic levels just in time for the Federal Reserve to release its monetary policy decision. US GDP is also projected to grow 6.9% year-on-year this first quarter. Other reports such as increased orders for durable goods, rising consumer confidence and rising personal spending may also support the dollar. Good progress in vaccinations, as well as the lifting of quarantine restrictions should also create more growth potential in economic activity, which is projected to pick up in 2022.
Forecast for USD
Opinions on Wall Street are split into two, as some analysts believe that while the world is seeking to break out of the detrimental effects of restrictions associated with the coronavirus, the United States has pulled ahead, gaining advantage against other countries. In fact, with the US 'massive stimulus programs, economists are expecting larger inflationary jumps that could push Treasury yields higher, which, in turn, could strengthen the position of the US dollar.
This year, 10-year US bonds already rose more than 80 basis points, hitting 1.77% last March. It is the highest level achieved since the start of the coronavirus pandemic. At the moment, the yield is at 1.56%.
But not everyone is convinced that the US will continue to outperform its competitors. Some believe that the dollar's strength will fade as other countries catch up with vaccine rollouts, since such would accelerate economic activity. More specifically, the euro is expected to outperform the dollar as European countries recover in the medium term.
And the euro, climbing above the 20th figure, clearly indicates the strong upward potential of risky assets. But before it can hit 1.2240, the quote needs to hold above 1.2000 first. In fact, it is very important for bullish traders to protect 1.2090, as quite a lot will depend on it. If the euro drops below the level, price will collapse to 1.2050, where a break below could end the bull market. But if bullish traders successfully defend 1.2090, the euro could rise to 1.2140, where a break above could lead to a new wave of growth towards 1.2190 and 1.2240.
Fundamental data
With regards to macro statistics, the US Department of Commerce reported that new home sales rose by 20.7% last March, reaching 1.021 million year-on-year. But despite such strong demand, sales are unlikely to accelerate because the sharp rise in house prices will most likely affect the index.
In terms of inflation, the IHS Markit said composite PMI rose to 62.2 points in April, from 59.7 points in March. Service PMI, on the other hand, jumped to 63.1 points, from 60.4 points a month earlier. As for Manufacturing PMI, it climbed to 60.6 points. Obviously, the gradual removal of restrictions, as well as the vaccination programs, enabled the sectors to achieve better results.
Of course, all this suggests that the US economy is stronger than the others. If this continues, the euro will have a more difficult time to reach new local highs.
