Euro Price Fundamental Forecast: Bearish
- Euro struggles finding momentum on improving Eurozone data
- Fundamental risks appear tiled to the downside for EUR/USD
- EUR/USD vulnerable to bearish contrarian sentiment signals
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Euro Weekly Wrap
Italy climbed out of a technical recession and euro-region economic growth doubled from the fourth quarter this past week. On the chart below, overall economic outcomes in Europe have been disappointing by smaller margins. Yet, EUR/USD could not find meaningful upside momentum as it spent most of the past five days trading sideways.
This was partially due to the Fed which surprised less-dovish than what the markets were expecting, leading to US Dollar gains and weakness in the S&P 500. Rounding it off on Friday, the Euro didn’t pay much attention to better-than-expected April Eurozone CPI data. Rather, it tuned in to broad US Dollar weakness following a mixed local jobs report that saw bond yields fall and the S&P 500 rise in risk-on trade.
Euro Week Ahead
That the Euro was struggling to find much upside momentum last week on what has been improving regional economic data is a sign of caution. In the end, this comes down to how it can impact the ECB’s monetary policy and for now, it seems that a rate hike this year looks unlikely. The path forward will depend on more consistency in rosy statistics.
Thankfully the Citi Economic Surprise Index for the nation-bloc is heading towards positive territory, meaning that improving data outcomes ahead could cool growth slowdown fears. The docket is lighter this week though, with a batch of factory orders, industrial production and trade data out of Germany. For additional highlights, keep an eye on the European Commission economic forecasts on Tuesday.
Still, this may not offer enough upside momentum given a lack of critical data and there exists plenty of external risks for the Euro in the medium-term such as the European Parliament elections this month. But in the near-term, as the US perhaps anticipates reaching a trade accord with China by Friday, across the Atlantic fears of a new one are brewing.
If US President Donald Trump shifts his tariff-oriented external policy towards the EU, with using the one with China as a frame of reference, the shroud of uncertainty encompassing global trade could yet be fully lifted. As of Friday, Mr Trump said that he is undecided on EU auto tariffs. This also comes at a time when higher crude oil prices could hurt European growth given that it is an overall net importer of petroleum.
EUR/USD Bearish Sentiment Bias
On the next chart below, retail trader data shows that 60.6% of EUR/USD traders are net-long. With positioning being further net-long than last week, the combination of sentiment and recent changes offers a stronger EUR/USD-bearish contrarian trading bias. If you are interested in this, join me every week on Wednesday’s at 00:00 GMT as I uncover what positioning has to say about the prevailing market trends!
Euro Trading Resources:
–— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter