EUR/USD Tests Resistance, Euro Optimism Trumps Fed Expectations
Frankfurt (May 4) Although the dollar gained ground after the optimistic Fed stance, increased confidence in the Eurozone political and economic environment has triggered net EUR/USD gains.
Although interest rates were left unchanged at the latest Fed meeting, the FOMC maintained a confident tone surrounding the outlook and expected weaker first-quarter GDP data to be transitory. The overall tone suggested that the FOMC would look to continue policy normalisation at the June meeting. The dollar gained ground following the statement, but EUR/USD found solid support in the 1.0880 area.
In the French Presidential election TV debate, Macron was generally seen to have performed better than rival Le Pen in a bruising encounter. The debate and latest opinion polls reinforced expectations that Macron would win comfortably in Sunday’s run-off vote which helped underpin confidence in the Eurozone political outlook.
The final Eurozone PMI services-sector reading was revised higher to 56.4 from the flash reading of 56.2 with the overall composite index at a 6-year high. There was further upward pressure on prices which maintained expectations that the ECB would push towards removing some policy accommodation within the next few months.
There was further equity-market strength in Europe as the German DAX index trading at a fresh record high which helped support capital inflows.
US jobless claims declined to 238,000 in the latest week from 257,000 previously and continuing claims fell to a fresh 17-year low. The data suggested that workers are finding it easier to re-enter the labour market which sustained confidence in the US outlook.
The US data overall reinforced expectations that the Federal Reserve would look to raise interest rates gain at the June meeting, especially with a larger than expected 3.0% increase in first-quarter labour costs. There were also further losses for US Treasuries with 10-year yields moving to 2.36% in New York.
European bond yields also moved higher, however, and there was no widening on yield spreads in the dollar’s favour which curbed further US support.
Overall, EUR/USD strengthened to the 1.0940 area during the New York session with tough resistance ahead of 1.0950.
There is likely to be consolidation ahead of Friday’s employment report with solid EUR/USD buying on dips likely ahead of Sunday’s French vote. The US healthcare debate will also be monitored closely.
Soiurce: EconomicCalendar
