EUR/USD bulls eye 1.0900 amid US default woes ahead of Eurozone GDP, US Retail Sales

• EUR/USD picks up bids to extend week-start rebound from monthly low.
• Euro bulls cheer upbeat EC economic forecasts and downbeat US data to ignore softer Eurozone, German catalysts.
• Looming fears of US debt ceiling talks going haywire weigh on US Dollar.
• Hopes of upbeat Eurozone Q1 GDP, softer US Retail Sales also weigh on the EUR/USD price.

EUR/USD remains firmer for the second consecutive day around 1.0880 as it defends the previous day’s U-turn from a five-week low heading into Tuesday’s European session. Adding strength to the Euro pair is the broad US Dollar weakness amid the cautious mood ahead of the debt ceiling talks, as well as due to the downbeat US data. It’s worth noting that mostly upbeat economic analysis from the European Commission (EC) also favors the Euro buyers ahead of the first readings of the Eurozone’s first quarter (Q1) Gross Domestic Product (GDP).

On Monday, the European Commission upwardly revised its quarterly projections for Eurozone’s economic growth and inflation for 2023 to 1.1% and 5.8% versus 0.9% and 5.6% expected in February. Further, the European Central Bank (ECB) also released its monthly Economic Bulletin offering details on the economic, financial and monetary developments in the Euro area while saying, “Most of the impact on inflation is expected from 2023 onward.” The ECB Bulletin also said that the transmission of rate hikes to economic activity is faster.

Alternatively, Germany’s Economy Ministry said in its monthly report that the underlying economic momentum has recently weakened noticeably. However, the report also said, “Mood indicators point to economic recovery in the further course of the year.” On the same line, Eurozone Industrial Production dropped 4.1% MoM in March versus -2.5% expected and +1.5% previous reading. More importantly, the YoY figures were quite disappointing with -1.4% yearly mark compared to 2.0% prior and 0.9% expected.

On the other hand, the US Dollar Index (DXY) drops to 102.40 as it keeps the week-start pullback from the monthly high. Behind the DXY’s latest weakness is Monday’s NY Empire State Manufacturing Index which marked the biggest fall since April 2020, to -31.8 for May. The same joins the downbeat signals from the US inflation numbers flashed the last week, as well as justifying the Federal Reserve’s (Fed) dovish hike, to weigh on the US Dollar and propel the EUR/USD price.

Elsewhere, the Federal Reserve (Fed) signals have been mostly upbeat as Atlanta Fed President Raphael Bostic told CNBC on Monday that there is still a long distance to go on inflation and added that they may have to "go up on rates," as reported by Reuters. On the contrary, Chicago Federal Reserve Bank President Austan Goolsbee said in an interview with CNBC on Monday that a lot of impact of rate hikes is still in the pipeline. Furthermore, Minneapolis Fed President Neel Kashkari stated that signaled that the Fed has a long way to go to get inflation to 2.0%.

It should be noted that the White House announced a meeting between President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy to overcome the looming US default. However, the latest comments from United States House Speaker Kevin McCarthy saying, “I don’t think we’re in a good place,” seem to put a floor under the US Dollar price, via fears of deadlock on the US debt ceiling extension as Republicans may stick to their demand.

Against this backdrop, S&P 500 Futures print mild losses even as Wall Street closed positive and the yields remain pressured, which in turn shows the market’s indecision and awaits the important data/events for clear directions.

Looking ahead, the likely unimpressive Eurozone Q1 GDP prints of 0.1% QoQ and 1.3% YoY can entertain EUR/USD traders on posting any positive surprise, which is more likely. In case of the downbeat figures, the Euro pair sellers need to remain cautious ahead of the US Retail Sales for April, expected at 0.7% MoM versus -0.6% prior.

Above all, the US policymakers’ ability to offer a positive surprise to the markets, via either a strong solution to avoid the default or a basic guide to extend the debt ceiling, becomes needed for the EUR/USD bulls.

Technical analysis

The EUR/USD portrays a two-week-long falling wedge bullish pattern as the oversold RSI (14) line favors the buyers. Adding strength to the recovery moves are the bullish MACD signals.

With this, the Euro buyers are likely to keep the reins, at least technically, as they approach the key 1.0940 resistance confluence comprising the top line of the stated falling wedge and the 200-bar Exponential Moving Average (EMA).