The weakening economic outlook for the Eurozone has translated into a 120 pip slide to the downside for the EURUSD. With bearish sentiment growing as seen in the ActivTrader sentiment indicator. The news today was that the Euro Area economy contracted 0.6% on quarter in January-March 2021, with the free-trading bloc entering a double-dip recession in the first quarter due to COVID-19 disruptions to the services industry.
With a deprecation in euro prices, we saw the USDCHF rise around 0.5% and at the London close, Swissy was trading 0.912 with 81% of traders on the ActivTrader platform bullish on the pair. With the rise in the US dollar across the board, the USDCHF has now hit previous support now resistance and so has the US dollar index, so what happens in early trading next week should set the theme for the rest of May.
Overall, I favor a return to the bearish trend for the US dollar and the USDCAD is my go-to best bearish case currently, as it is only just able to stay above the days open whilst everything else moves higher, showing how hawkish everyone is the Canadian economy. That sentiment could change as the Canadian economy expanded by 0.4% MoM in February which was under the expected 0.5% by market analysts. Though in aggregate the 10 continual rises are good for the future prospects when Canada has a grip on the pandemic situation.
The pound has swept the lows of the recent range and this is where I expect to see aggressive buyers of sterling step in, so any movement to the downside in my opinion opens up the double bottom of March and April and the daily 200 ema. For the pound bulls the 50-day ema really needs to hold as support today and early next week, to give them confidence the uptrend can continue.
The US dollar has had a boost on some good US data as US Personal Income has risen at a record pace. The print today was 21.1, coming up from -7 last month.
It is the biggest rise on record reflecting an increase in government social benefits as most of the Americans received stimulus checks under The American Rescue Plan Act. Because it is fiscal-led, expectations should be for a return to the normal band of data readings unless of course, President Biden can keep sending cheques to families through his continuing stimulus plans.
US Core PCE is the Fed’s preferred measure of inflation and that showed a modest uptick to 1.8% YoY for March. The base effects are adding about 1%, so the economy more realistically is seeing 0.8% and this is what Chair Powell feels is transitory and will not be lasting beyond the summer.