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EUR/USD touches 1.21, IFO in focus

Overnight Headlines

*US stocks close near their highs after strong data boosts market mood

*USD shunned as global recovery story gains momentum

*EUR bulls looking to German business survey (IFO) to boost sentiment

US equity futures are modestly in the green after a strong close last week pointed to the economic recovery story getting back on track. Support around 4118 on the S&P500 with strong dip buying seen here on multiple occasions suggests bulls should be looking to new record highs soon. European bourses are set to open higher although Asian markets are mixed this morning.

USD is struggling in the first trading session of the week, with the DXY retracing two thirds of this year’s rally. Positive news on the European vaccine rollout, with the bloc hoping to immunise 70% of its adults by mid-July, and strong European PMI data has pushed the dollar to its lowest levels since early March. The next target on USDX is 90.

Market Thoughts – Busy week has a bit of everything…

It’s a packed week with the FOMC meeting Wednesday, President Biden’s first speech to a joint session of Congress Thursday and US Q1 GDP to round off proceedings, with tech earnings keeping us on our toes throughout. Chair Powell is expected to keep policy intact and not give any new signals, even as GDP growth potentially hits 7% q/q annualised, while Joe Biden will release details of his second economic reform package focused on social spending financed by higher taxes on wealthy Americans.

Expectations are for market trends to continue which means more new highs in equities and the greenback to continue lower – we can just about hear all those sighs of relief from Wall Street analysts who had predicted big falls in the dollar from the start of the year. Tech earnings will battle with any announcement on a capital gains tax hike, but the latter may help relieve the US over-heating debate which means the Fed can go easy on policy changes.

Chart of the Day – EUR/USD pushing on

We got good evidence that the European economy is ticking along well last week with the strong PMI releases and this morning sees the key IFO German business survey released. Later in the week we get (backward-looking) Q1 GDP data and inflation which is expected to jump and give the hawks at the ECB more fuel to push back on the emergency QE program in June.

With both the vaccine rollout and the EU fiscal stimulus plan picking up steam, things are looking good for the EUR, although the gains from 1.17 at the end of March are now coming up against the top of this year’s down channel. Support lies first at the 100-day moving average at 1.2050 and then around 1.20. For bulls, a break and close above 1.2120 could see a move back to 1.22 and above, though momentum indicators are becoming more stretched.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

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