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EUR/USD - US Economy sees worst quarter since COVID-19 outbreak

The US released its latest GDP figures at the start of yesterday’s US trading session. The announcement is deemed to be of high importance and could potentially influence the US Dollar.

The most traded currency pair EUR/USD continued its bullish trend which was fuelled even further by the decline in the US’s GDP figures. During this morning’s Asian and European sessions, the pair has managed to break through the previous high (1.0730), continuing to form conventional bullish price waves.

The pair has managed to maintain higher highs and lows, as well as an above-the-monthly-average price. Bollinger bands are forming an upward direction again and the stochastic oscillator has crossed upwards. Both indicate that the price may potentially continue its bullish trend, however, traders should be wary of any new developments that could cause volatility.

Currently, both the Euro and USD indices are indicating a slight increase in the value of the currencies. However, the US Dollar has slightly gained momentum against the Euro over the past 30 minutes. Traders will monitor the momentum and look out for any indications of a change of trend in favor of the US Dollar.

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The US Dollar

Investors continue to analyze the minutes of the FOMC, which are aligned with the predictions. Officials confirmed the need for several more rate hikes of 50 basis points, but there were no hints of a more dramatic increase.

Members of the regulator did not rule out the possibility of abandoning the neutrality of the rate, which is a continuation of the increase after its level reaches 2.50% - 2.75%. This will become necessary if the ultimate goal of easing inflation to the target level of 2.0% is not achieved. In general, officials are not yet ready for a sharper increase in rates by 75 basis points or more, as the Central Bank wants to avoid causing an economic downturn. The Fed is also analyzing the effect of current rate hikes before considering larger increases.

In Q1 2022, GDP declined by 1.5% which is a stronger decline than the 1.3 - 1.4% predicted by Dow Jones and other market participants. The decline is the worst economic downturn in the US since the COVID-19 lockdowns were introduced. Investors are contemplating whether this will damage the Fed’s hawkish outlook. However, this is not likely to materialize unless we continue to see a decline in the GDP, along with inflation.

On the bright side, the Unemployment Claims in the US were confirmed as less than originally expected.

The Euro

Since the market has not released any major developments regarding the Eurozone, investors concentrate on external factors. In general, investors continue to follow the comments made by bankers regarding the ECB’s (European Central Bank) comments after the head of the regulator Christine Lagarde allowed the increase in deposit rates from -0.5% to a positive level by September.

So far, other bankers have not expressed direct disagreement with this position, which is a positive for the Euro, but many officials call for flexibility in the bank's approaches. Yesterday, the idea of ​​raising rates was supported by the Dutch Central Bank Chief Klaas Knot, who has long advocated maintaining the current loose monetary policy.

The main risks associated with the Euro and the Eurozone are related to the economic impact of the Russia-Ukraine conflict. This includes economic backlashes from sanctions and the dependency which European nations have on Russia for gas, oil, pesticides, and raw materials. This is also reflected in the inflation rate and the Eurozone’s latest PM Index.

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