EUR/USD Forecast May 4-8 – Euro Gains Ground, But Dismal PMIs Expected

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EUR/USD posted strong gains last week, climbing 1.4 percent. The upcoming week features manufacturing and services PMIs. Here is an outlook at the highlights and an updated technical analysis for EUR/USD. 
Corvid-19 ravaged European economies in Q1 – France’s economy declined by 5.8%, Spain by 5.2% and the eurozone by 3.8 percent. On the inflation front, German CPI accelerated to 0.3% in April, up from 0.1%. Eurozone inflation dipped to 0.4%, while the core reading came in at 0.9 percent. German retail sales fell by 5.6% in March, its sharpest decline in 2007. The ECB held its main financing rate at 0.00% at its monthly policy meeting. ECB President Christine Lagarde didn’t mince words, saying that the eurozone economy would be in  “unprecedented decline” into 2021.
In the U.S., the initial release for GDP in Q1 reflected the economic havoc caused by Covid-19. The decline of 4.8% was worse than expected, as the forecast stood at 4.0 percent. Unemployment claims fell for a fourth straight week, dropping to 3.8 million. Still, this was higher than the forecast of 3.5 million.
The Federal Reserve’s policy statement reiterated that the Fed would use its “full range of tools” to stabilize the battered economy, but also warned about “considerable risks” to the economy over the next year or more. At the meeting, the Fed maintained the benchmark rate, which is close to zero.
On Thursday, the Fed announced that it was expanding the Main Street Lending Program, which helps small and medium-sized businesses in need of credit during the current financial crisis. On the manufacturing front, the ISM Manufacturing PMI slowed for a third straight month in April, falling to 41.5 points. This was down from 49.1 a month earlier, but beat the estimate of 36.7 points.

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

  1. Manufacturing PMIs: Monday: 7:15 for Spain, 7:45 for Italy, final French figure at 7:50, final German one at 7:55, and final euro-zone number at 8:00. Markit’s forward-looking purchasing managers’ index for Spain’s manufacturing sector has been in contraction mode for nine of the past 10 months, and the trend is expected to continue in April, with an estimate of 35.0 points. In Italy, the PMI is projected to slow to 30.3 points. The German indicator has been in contraction since December 2018 and is expected to fall to 34.4 points. The eurozone PMI slipped to 44.5, its weakest reading since 2012. The estimate for April stands at 33.6 points. France slipped to 43.2 and the estimate stands at 31.5 points.
  2. Sentix Investor Confidence: Monday, 8:30. Investor confidence plunged in March, falling to -42.9 points. This was down from -17.1 a month earlier. Another sharp decline is expected, with a forecast of -25.9 points.
  3. Spanish Unemployment Change: Tuesday, 7:00. Unemployment claims hit Spain like a tsunami in March, with a staggering reading of 302.3 thousand. This crushed the estimate of 27.7 thousand. Will we see a dismal reading in April as well?
  4. PPI: Tuesday, 10:00. The Producer Price Index declined by 0.6% in February, missing the estimate of -0.3%. This marked the first decline in six months. Another weak reading is expected in March, with an estimate of -1.2 percent.
  5. German Factory Orders: Wednesday, 6:00. This indicator has sputtered, with four declines in the past five months. The indicator posted a loss of 1.4% in February and is expected to plunge by 10.0% in March.
  6. Services PMIsWednesday, 7:15 for Spain, 7:45 for Italy, final French figure at 7:50, final German one at 7:55, and final euro-zone number at 8:00. March was an absolute disaster, as the services sector contracted sharply. The German PMI slipped to 31.7, down from 52.5. This was the first reading below the 50-threshold since 2012. The eurozone indicator slid to 26.4, down from 52.6 points. The Spanish, Italian and French numbers were also sharply lower. The April numbers are expected to be even worse – 10.0 in Spain, 10.4 in France, 15.9 in Germany and 11.7 in the eurozone.
  7. Retail Sales: Wednesday, 9:00. Eurozone retail sales posted a strong gain of 0.9% in February, crushing the estimate of 0.1 percent. However, analysts are braced for a sharp decline in March, with an estimate of -11.2 percent.
  8. German Industrial Production: Thursday, 6:00. The indicator slipped to 0.3% in February. The forecast for March stands at -7.3 percent.
  9. French Trade Balance: Thursday, 6:45. France posts trade deficits on a continual basis. The deficit narrowed to EUR -5.02 billion in February, down from EUR -5.9 billion a month earlier. Will the deficit continue to improve in March?
  10. German Trade Balance: Friday, 6:00. Germany’s trade surplus widened to EUR 21.16 billion in February, up from EUR 18.5 billion a month earlier. This was the highest surplus since May 2018. The upturn is expected to continue in March, with an estimate of EUR 20.1 billion.

EUR/USD Technical analysis

Technical lines from top to bottom:

We start with resistance at 1.1435 was tested in resistance in mid-March.

1.1215 has held since mid-January. 1.1119 is next.

1.1025 (mentioned last week) is under pressure in resistance.

1.0900 has switched to a support role after strong gains by EUR/USD last week.

1.0829 is next.

The round number of 1.07 saw action in mid-March, when EUR/USD showed strong volatility.

1.0620 is protecting the 1.06 level. This is the final support line for now.

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I remain bearish on EUR/USD

This week’s economic numbers are expected to be dismal, reflecting deteriorating conditions across the eurozone due to the Covid-19 outbreak. This could weigh on the euro.

Further reading:

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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