The economic gap between the Eurozone and the United States keeps widening
The euro bounced slightly on Monday, deriving support from the 1.2000 area. EURUSD plunged on Friday amid widespread demand for the safe-haven dollar and has been struggling to stage a more robust recovery as the greenback looks steady at the start of the week.
From the fundamental point of view, the euro could see losses versus the American counterpart in a wider picture as the economic gap between the Eurozone and the United States keeps widening. Of note, the European economy contracted by 0.6% during the first quarter while the US GDP grew 6.4% at an annualized rate. Furthermore, several fresh reports point to even more robust growth in the second quarter.
Also, there are early signs of the Federal Reserve getting more hawkish after Robert Kaplan, the President of the Dallas Fed said he wants the bank to signal to the taper of the bond-buying scheme soon. Powell is set to speak later in the day, so a pickup in volatility could be expected in the short term. If the central bank’s governor hints at a more hawkish view on monetary policy tightening, the greenback could see another rally across the board.
In this scenario, the EURUSD pair may lose the 1.2000 support and see deeper losses today. From the technical point of, downside risks are limited as long as the prices stay above this figure where the ascending 20-DMA lies. the pair has been trading above this moving average for a month already, so a break below this significant support zone would bring more selling pressure. On the upside, the immediate barrier is represented by the 100-DMA around 1.2050.
As for the USD index itself, the price faced a decent resistance around 91.40 at the beginning of the week as US yields struggle for direction above 1.60%. The current technical picture points to a neutral tone surrounding the US currency. The greenback could spend some time in consolidation mode in the short term before deciding on the further direction.