Fundamental Euro Forecast: Bullish
- Clear signs that the global economy is recovering strongly could give a further boost to EUR/USD in the days ahead as more investors move out of safe-haven assets such as the US Dollar and into “risk-on” assets including the Euro.
- The first target for the bulls is the 1.22 round number and then the February 25 high at 1.2243.
Euro price outlook: further gains
Clear signs are emerging that the global economy is now expanding rapidly after the sharp contraction caused by the coronavirus pandemic, and that should mean more losses for the safe-haven US Dollar and more gains for the currencies traders turn to when sentiment improves – the Euro included.
Among the signals last week of a decent upturn, the clearest was the news that the US economy expanded at a remarkable 6.4% annualized rate in the first quarter of 2021. While that number was arguably backward-looking, early indicators for April were positive too, with Eurozone economic, industrial and service-sector sentiment indicators all coming in above expectations, as did German inflation.
That’s all positive for EUR/USD even though – as I warned here last week – there could be a pause for breath after the recent gains. That said, the 1.22 round number and the 1.2243 high reached on February 25 both look achievable before too long even if much of the good news has been priced in already.
EUR/USD Price Chart, Daily Timeframe (December 29, 2020 – April 29, 2021)
Source: IG (You can click on it for a larger image)
A step-up in EU vaccinations against the Covid-19 virus is also likely to have a positive impact on the region’s economy as Germany moves to relax restrictions for those people who have been vaccinated, France begins to lift its lockdown from Monday, and many Italian regions relax restrictions from Monday on businesses including restaurants, bars and cinemas.
Week ahead: Final PMIs
Turning to the economic data, the Eurozone statistics due in the week ahead are second-tier so unlikely to have much of an impact on EUR/USD as the focus will be on Thursday’s meeting of the Bank of England’s monetary policy committee and Friday’s US non-farm payrolls data.
Among the numbers due, final manufacturing PMIs and German retail sales data are released Monday, final services PMIs Wednesday, German factory orders and Eurozone retail sales Thursday, and German trade and industrial production Friday.
— Written by Martin Essex, Analyst
Feel free to contact me on Twitter @MartinSEssex