The Euro (EUR) trades comfortably in the mid 1.10s against the US Dollar (USD) on Thursday during the early European session. The pair has stabilized after recent volatility caused by renewed recession fears and banking crisis deja vu in the US. The overall trend is up from a technical standpoint, and the probabilities favor long holders.
EUR/USD market movers
- First Republic Bank is mulling over selling half its loan book to plug a $100B deposit flight gap, renewing banking-crisis fears.
- The impact on the US Dollar is debatable. Some analysts see an upside for the USD on increased safe-haven demand, while others focus on how it would dissuade the Fed from hiking – a Dollar-negative.
- US Consumer Confidence figures for April eclipsed higher-than-expected New Home Sales and were seen as a warning of an impending US recession.
- JP Morgan’s CIO, Bob Michele, sees deposit flight in the US as more systematically linked to lower-income earners burning through savings to meet the rising cost of living, raising banking/recession concerns.
- The Euro has been supported by overall hawkish comments from ECB officials such as Pierre Wunsch, president of Belgium’s Banque Nationale, who said, “We are waiting for wage growth and core inflation to go down… before we can arrive at the point where we can pause (hiking rates).”
- ECB’s chief economist Philip Lane said interest rates would rise at the May 4 meeting, but whether beyond that depends on the data.
- Previously, Lane had said a lot is riding on the state of Eurozone banks, as assessed by the ECB’s Bank Lending Survey out on May 2, as well as April flash HICP inflation data released on the same day.
- However, European banks’ solid first-quarter earnings due to higher interest margins suggest the bank survey may paint a good picture.
- ECB President Christine Lagarde recently said there is still “some way to go” before Frankfurt is done with hiking interest rates.
- The US Dollar is at a disadvantage since Federal Reserve (Fed) officials are in the two-week blackout period before the May 4 meeting, during which they are not allowed to comment.
- Before the blackout, St. Louis Fed’s Bullard was hawkish, saying he expects more rate hikes due to persistent inflation and overblown recession fears.
- The essential data release for the Euro on Thursday is Eurozone Consumer Confidence in April, out at 9.00 GMT.
- The major release for the US Dollar is first quarter GDP data, out at 12:30 GMT.
EUR/USD technical analysis: New triangle potentially forming
EUR/USD reached a new 2023 high of 1.1095 and has rolled over to trade in the mid-1.10s at the time of writing. The broader medium-term uptrend, however, remains intact – and will continue to – as long as the 1.0830 lows hold. Overall the odds favor a continuation of the dominant Euro bullish trend.
EUR/USD may form a triangle pattern, with Wednesday’s highs representing a false breakout. If so, the triangle may have formed four distinct waves labeled A-D on the chart above. Since triangles usually have five waves, they may be close to completion, with only wave E remaining before completion.
Triangles can break out in either direction, but given the dominant trend is bullish, the odds partially favor a breakout higher. As such, a decisive break above the 1.1095 year-to-date highs would confirm such a bullish breakout from the triangle and a continuation of the Euro’s uptrend to the next key resistance level at around 1.1190, the 200-week Simple Moving Average (SMA) is located. However, if the triangle fulfills its full price potential, the Euro-US Dollar could reach 1.1229.
For clarity, a ‘decisive break’ might be a ‘breakout candle’ – a long green bullish daily candle that extends above the 1.1075 highs and closes near its high – or three smaller bullish green candles in a row that break above the highs.
Alternatively, a break and daily close below the critical 1.0909 lows would signify a bearish breakout from the triangle, with a target at 1.0805, which could suggest a possible reversal of the dominant trend.