EUR/USD eyes first monthly gain of 2020

• EUR/USD is on track to post the first monthly gain of 2020. 
• Technical breakout and EU fiscal hopes could push EUR/USD above 1.11 on Friday. 
• Some observers, however, hold reservations about the EU’s fiscal plan. 
• On the data front, the focus will be on German Retail Sales and Eurozone CPI.

EUR/USD appears on track to end May on a positive note. This will be the first monthly gain since December when the exchange rate had appreciated by 1.88%. 

At press time, the pair is trading near 1.1090, representing a 1.25% gain on a month-to-date basis and a 1.75% rise on a week-to-date basis.

On the hunt for a move above 1.11

EUR/USD closed well above 1.109 yesterday, marking a range breakout on the daily chart. The bid tone around the shared currency strengthened, possibly due to the European Union’s (EU) bigger-than-expected fiscal stimulus proposal of 750 billion euros. 

The range breakout has opened the doors for a convincing move above 1.11 and a test of resistance at 1.1145/66 – the late March high and 61.8% retracement of the March collapse. So, the probability of EUR/USD closing May with stronger gains cannot be ruled out. 

Traders, however, should keep an eye on the German Retail Sales (Apr), scheduled for release at 06:00 GMT, and the preliminary reading for Eurozone’s Consumer Price Index for April, due at 09:00 GMT. 

The pair will likely face selling pressure if the inflation figure prints below estimates, reinforcing expectations for additional European Central Bank (ECB) stimulus. The central bank is set to conduct rate review and publish fresh economic forecasts next week. 

Also, some observers are of the opinion that the EU’s fiscal stimulus proposal is not a game-changer. “While it is a step in the right direction, which could allow peripherals to inject more stimulus into their economies from 2021, it is not a game-changer as debt level alleviation will be marginal. And uncertainty about political ratification remains significant,” Nicola Mai, a member of PIMCO’s European portfolio committee, told the Reuters Global Markets Forum.

Stronger gains in EUR/USD may also remain elusive if President Trump, on Friday, announces sanctions on China in retaliation to Beijing’s decision to curb Hong Kong’s autonomy. 

Technical levels