EUR/USD Dips on Strong US GDP Data, Inflation Concerns Fuel Dollar Gains
EUR/USD experiences a sharp decline following the release of Q1 US Gross Domestic Product (GDP) data. While GDP growth fell short of expectations, the accompanying rise in inflation metrics has heightened Fed hawkishness expectations, boosting the US Dollar.
Key Factors:
- US GDP Surprise: Q1 GDP growth disappoints at 1.7%, falling below the 2.5% estimate, yet a significant increase in the GDP Price Index (3.1%) signals persistent inflationary pressures.
- Inflation Impact: The spike in inflation, along with robust Core PCE data, reinforces the case for the Federal Reserve to maintain higher interest rates for longer, fueling USD strength.
- Shifting Fed Expectations: Markets now favor a September rate cut (58.2% probability) according to the CME FedWatch Tool, reflecting a potential delay.
- Additional Data Impacts: Favorable Initial Jobless Claims and Pending Home Sales figures further support the USD.
Recent Market Dynamics:
- Mixed Data Impacts: A temporary EUR/USD recovery midweek followed weaker-than-expected US PMI figures, which suggested a softening economy. However, strong Durable Goods Orders data failed to significantly move the USD.
Technical Analysis: Range Breakout, Uncertainty Prevails
- Range Breakout: EUR/USD's breakout above the recent rectangular range (1.0700) introduces uncertainty about the Bear Flag pattern formation.
- Potential Bullish Shift: The short-term trend could turn bullish, with initial resistance at 1.0757 and potentially reaching the 50-day and 200-day SMAs (1.0807).
- Bear Flag Revival: A break below the April 16 low (1.0601) would reaffirm the Bear Flag pattern, suggesting further downside towards 1.0503, 1.0448, and potentially even 1.0403.