The financial markets have adopted an optimistic tone in recent days, with the revised Eurozone HCOB Manufacturing PMIs for April providing a welcome boost. Meanwhile, in contrast to the encouraging news from Europe, US data has offered mixed signals.
On Thursday, the US Dollar rebounded following Wednesday's sharp decline, prompted by the United States Federal Reserve (Fed) monetary policy announcement. As expected, the Fed's stance remained hawkish, with no changes made to the current interest rates.
The news turned out to be less worrisome than anticipated, with Chairman Jerome Powell and his colleagues appearing relatively unfazed by the economic conditions, leaving room for the possibility of future reductions in interest rates. Still, the greenback experienced a sharp decline following the Federal Reserve's monetary policy announcement, pushing EUR/USD closer to the 1.0730 mark.
On the other hand, the European manufacturing sector showed a more robust-than-anticipated recovery in April, as evidenced by the finalized German and Eurozone Manufacturing PMIs, which came in at 42.5 and 45.7, respectively. These figures surpassed their initial estimates.
US mixed data
The US economic data presented conflicting signals as March's trade balance for goods and services revealed a deficit amounting to $69.4 billion, surpassing the projected figures. However, the week concluding on April 26 saw a drop in initial claims for unemployment benefits to 208K, which was favorably compared to the anticipated 212K. In the initial quarter, nonfarm productivity witnessed a slight increase of 0.3%, and the unit labor costs exceeded expectations by climbing 4.7%, compared to the predicted 3.6%.
The USD exhibited weakness against its major counterparts due to the ambiguous economic data emanating from both the US and Europe, causing EUR/USD to trade near the 1.0700 level. The current trend in the pairing's daily chart can be characterized as neutral, but the potential for risk remains predominantly on the downside.
The EUR/USD pair faces a significant challenge in breaking above the bearish trend established by the 20-day Simple Moving Average (SMA), as indicated by the negative slope of the 100 and 200 SMAs.
The Momentum oscillator displays an upward trajectory within its neutral zone, whereas the RSI indicator suggests only modest buying pressure, remaining near the 45 mark.
A closer examination of the 4-hour chart unveils a progressively more bearish outlook for EUR/USD, with bears gaining ground and intensifying their efforts to push the pair lower. The trend's strength is evident in the chart as it continues to shift further away from neutral territory towards a bearish direction.
The currency pair is exerting pressure on a level 20 Simple Moving Average (SMA) as the 100 SMA trends downward, slightly beneath the shorter SMA. If the value goes below 1.0645, the decrease will likely become more significant, potentially reaching below the lowest point of the year at 1.0600.
Summary
The USD exhibits weakness against major currencies due to ambiguous economic indicators emanating from the United States. Meanwhile, the current bearish trend in EUR/USD is evident on the daily chart. The pair consistently falls short of breaking above the 20-day SMA, indicating strong downward momentum.
The current Relative Strength Index (RSI) reading for EUR/USD is at 45, suggesting that bears are currently in control of the market trend.
The interplay of significant data from the US and Europe will be a crucial determinant in the trading dynamics of EUR/USD in the coming week. However, the technical analysis suggests that if the critical resistance level of 1.0740 remains intact, and with the possibility of further divergence in interest rates between the two currencies, there could be a move towards a lower target of 1.0600, indicating further downside potential.