Opening trading positions on the last day of a trading week and month, and even on the eve of a long weekend, is not a good idea. On Monday, May 3, many trading floors in the world will be closed (in particular, Britain, China, some European countries), so the market may show increased volatility against the backdrop of low liquidity. Trusting the current price fluctuations is also not worth it – many traders fix profits at the end of the week / month, exerting a corresponding influence on the dynamics of currency pairs.
The euro-dollar pair is no exception here. On the contrary, traders of this particular pair have certain reasons for closing longs. Yesterday’s optimism related to the growth of German inflation was offset by today’s release of data on the growth of European inflation. So, the German inflation yesterday surprised with quite strong figures, despite the continuing quarantine restrictions in Germany. On a monthly basis, the general consumer price index continued its upward trend in April, having risen to 0.7%, and on an annualized basis – to 2.0% (the indicator has been growing consistently over the past four months). The harmonized consumer price index also found itself in the “green zone” – both in monthly and annual terms. The German data quite often correlates with the European one, so the expectations were appropriate.
But today’s release came out at the predicted level: the general consumer price index grew to 1.6%, the base one – slowed down to 0.8% (the decline has been recorded for the third month in a row). Also released today was data on the growth of the German economy, which also did not impress. In the first quarter of this year, the volume of Germany’s GDP decreased by 1.7% (with the forecast of a decline to -1.5%). Let me remind you that in the fourth quarter of last year, the German economy showed minimal, but still, growth. Therefore, the first quarter result was disappointing, even despite pessimistic expectations.
On the one hand, the above macroeconomic reports are not catastrophic, especially since some of today’s indicators came out in the “green zone” (the volume of GDP in the eurozone and the level of European unemployment). But considering the “Friday factor”, as well as the fact that today is the last day of the month, traders focused their attention on the negative aspects of today’s releases and did not hold long positions.
Moreover, the dollar received little support from the American macroeconomic reporting today. Although in this case we can talk about a “reflex” reaction: lately dollar bulls have been ignoring statistics (even of a key nature) because of the “dovish” position of the Fed. At the last meeting, the American regulator once again reiterated the thesis that the current parameters of monetary policy will not be changed, regardless of the dynamics of the main macro indicators. Therefore, key releases have limited impact on greenbacks.
However, in the context of intraday trading, today’s publications were able to “stir up” the dollar bulls, which strengthened the corrective pullback for the eur / usd pair. The fact is that the data released today on the expenses and incomes of Americans came out either at the level of forecasts, or in the “green zone”. Core PCE Price Index rose to 0.4% MoM (best since July last year) and accelerated to 1.9% YoY (best since February last year) … The indicator of the level of spending (Personal Spending) came out of the negative area and was designated at around 4.2%. The labor cost index renewed multi-year highs, demonstrating growth immediately to 0.9%.
The dollar initially ignored the release, but after a while it strengthened its positions throughout the market, following the yield of 10-year Treasuries. This fact helped the bears of the euro-dollar pair to expand the range of the corrective pullback. Contradictory European statistics became an additional reason for closing longs eur / usd. But at the moment it is impractical to make trading decisions – both from the point of view of the “foundation” and from the point of view of “technology”.
The current price dynamics is a correction after the impulse growth to the level of 1.2150. Most likely, bearish sentiment will prevail for the pair until the end of today. However, this does not mean that the pair will continue its downward movement next week. The results of the last Fed meeting laid the foundations for further weakening of the greenback – even when paired with the single currency. The support level for eur / usd is located at 1.2050 (Tenkan-sen line above the daily chart). At the moment, the pair is begging for it, and judging by the strength of the southern impulse, the bears will test this target before the end of trading. But even if the price goes below this level, selling will still be risky, given all the above arguments. Therefore, it is better to postpone trading decisions on the pair – at least until Monday.