- EUR/USD has recovered back to the 1.1800 level from earlier sub-1.1750 levels.
- The pair is being boosted by broad USD weakness, which comes despite a strong of strong US data releases.
EUR/USD has been firmly on the front foot over the last few hours, rallying from under the 1.1750 mark prior to the arrival of US market participants to current levels around the 1.1800 level. The rally seems to have come in tandem with a broad weakening of the US dollar versus the majority of its major counterparts.
Having recovered back to 1.1800 and hit highs above 1.1810, the pair is now trading close to its highest levels since not last Thursday but the Thursday before (25 March). To the upside, resistance comes into play in the 1.1830-1.1850 region in the form of the 8 March low (at 1.1835) and 21-day moving average (at 1.1855). EUR/USD currently trades with on-the-day gains of about 0.4% or just under 50 pips.
Driving the day
As noted above, dollar weakness is the dominant factor in FX markets this Monday and the latest stronger than anticipated US Institute of Supply Management Services PMI survey (for the month of March) does not seem to be doing the dollar any favours. For reference, the headline PMI number came in at 63.7, above expectations for a rise to 58.5 from 55.3 – the strong services PMI number comes in wake of an equally strong manufacturing PMI number last week, as well as a much higher than anticipated NFP number for the month of March released on Friday.
In other words, the March data so far has been very strong and continues to feed the narrative that the US economy continues to recover and at a seemingly accelerating pace. The rate of this recovery is likely to pick up as virus infection rates drop as the US moves into Summer, enabling reopening to accelerate. Back to Monday’s ISM services report; the subindices were also strong, with New Orders rising to 67.2 from 51.9 the month prior, with employment rising to 57.2 from 52.7 last month and with prices paid rising to 74 from 71.8.
While the recent string of strong tier one data releases since last Thursday have weighed on the US dollar, some analysts/market commentators expect this weakness to soon reverse. Strong data has sent US government bond yields higher (10-year yields are comfortably back above 1.70% again) – this has typically been a positive for USD. Meanwhile, the risk-on surge being seen in US equity markets right now (the S&P 500 has soured into the 4070s, up 1.3% on the day) might be a negative for safe-haven assets (of which USD is typically seen as one of), but the fact that the upside is being driven by expectations for US economic strength may well limit the associated USD downside.
Indeed, USD typically performs well when the US economy is outperforming its international counterparts, regardless of the market’s broader risk appetite, and that is certainly the case at the moment; Europe and other major economies (like India) face a rising tide of Covid-19 infections and fresh lockdowns, while the US continues to return to normality. As long as the “US exceptionalism” narrative continues, USD bulls are likely to remain confident; some technical analysts have been talking about USD bulls waiting for the Dollar Index (DXY) to revert back to its 200DMA just under 92.50 before adding to longs. With the DXY back to just above this level, buying interest is likely to pick up.
Looking ahead, the Fed will be back in the spotlight this week as the main driver for the dollar, with focus on Fed speakers including Chairman Jerome Powell (who speaks on Thursday) and focus on the releases of the minutes of the March FOMC meeting on Wednesday.
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