EUR/USD: Remains Near One-Year High Amid Strong European Economy, US Concerns

EUR/USD Highlights

• ECB may maintain hawkish position, supporting Euro
• US economy faces challenges from persistent inflation and slower growth
• US Treasury yields surge on slower growth data

EUR/USD Overview

On Thursday, the euro was close to a one-year high compared to the dollar, as the strong European economy contrasted with concerns of banking contagion in the US, the debt ceiling deadlock, and a possible recession.

The euro remained largely unchanged at $1.1035, hovering near Wednesday’s high of 1.1096, which was the highest since April of the previous year. Germany raised its growth predictions again on Wednesday, and a survey indicated continued growth in consumer confidence.

Euro Strengthens Amidst Robust Economy

The euro zone’s robust economy, along with an increase in underlying inflation, may enable the European Central Bank (ECB) to maintain its hawkish position, thereby supporting the Euro.

On the other hand, the US is experiencing persistent inflation that is not in sync with growth. This is putting pressure on the Federal Open Market Committee to tighten policy further. In the coming months, the possibility of more than one hike to the Fed Funds rate is an upside risk to the USD.

Traders Expect Hike, Vulnerable Euro

Although traders anticipate another quarter-point increase on May 3, with an 80% probability, it is expected to be the summit, with as many as two quarter-point cuts priced in for the end of the year. Some analysts believe that the euro is vulnerable to a decline against the dollar. The EUR/USD pair will remain susceptible to a pullback to 1.0763 as long as it remains below the pivot at 1.1009.

US Treasury Yields Surge Amidst Slow US Growth

On Thursday, investors scrutinized crucial economic data in the US, causing Treasury yields to surge in response to slower growth. The yield on the 10-year Treasury rose by over 9 basis points to reach 3.528%, while the 2-year Treasury yield increased by 16 basis points, exceeding 4%.

US GDP Growth Slows in Q1

During the first quarter, gross domestic product grew at an annualized pace of 1.1%. This figure is considerably lower than the economists’ estimate of 2%, as per Dow Jones. In the previous quarter, GDP rose by 2.6%.

Technical Analysis

The key R1 level at 1.1009 is currently being tested by the EUR/USD, which will likely determine the direction of the common currency in the near future. If buyers prevail and there is a sustained move above 1.1009 with enough momentum, the April high at 1.1095 may be the next target, followed by a challenge of R2 at 1.1177.

Conversely, if the level is breached downwards, it indicates that sellers have returned, which could trigger a near-term correction. Traders are keeping a close eye on how the Euro responds to 1.1009. It is expected to provide crucial insights into market sentiment.

For a look at all of today’s economic events, check out our economic calendar.