Euro trades in mid 1.10s ahead of US GDP release

• Euro vs US Dollar pulls back from highs just short of 1.11 to trade in the mid-10s on Thursday, ahead of US GDP data. 
• US recession and banking crisis fears provided the backdrop, amidst reports of First Republic Bank teetering again.
• The trend remains bullish according to technical analysis with the 200-day SMA at circa 1.1190 as the next target.

The Euro (EUR) trades comfortably in the mid 1.10s against the US Dollar (USD) during the early European session, on Thursday. The pair has stabilized after recent volatility, caused by renewed recession fears and banking crisis deja vu in the US. From a technical standpoint, the overall trend is up and the probabilities favor long holders. 

EUR/USD market movers

• First Republic Bank is mulling over selling half its loan book to plug a $100B deposit flight gap, renewing banking-crisis fears. 
• Impact on the US Dollar is debatable. Some analysts see upside for the USD on increased safe-haven demand, whilst others focus on how it would dissuade the Fed from hiking – a Dollar-negative.  
• US Consumer Confidence figures for April eclipsed higher-than-expected New Home Sales and were seen as warning of an impending US recession. 
• JP Morgan’s CIO, Bob Michele, sees deposit flight in the US as more systematically linked to lower-income earners burning through savings to meet the rising cost of living, further raising banking/recession concerns. 
• The Euro has been supported by overall hawkish comments from ECB officials such as Pierre Wunsch, president of Belgium’s Banque Nationale, who said, “We are waiting for wage growth and core inflation to go down... before we can arrive at the point where we can pause (hiking rates).”
• ECB’s chief economist Philip Lane went on record as saying interest rates will rise at the May 4 meeting but whether beyond that depends on the data. 
• Previously, Lane had said a lot is riding on the state of Eurozone banks, as assessed by the ECB’s Bank Lending Survey out on May 2, as well as April flash HICP inflation data released on the same day.
• Strong first quarter earnings by European banks due to higher interest margins, however, suggest the bank survey may paint a favorable picture. 
• ECB President Christine Lagarde recently said there is still “some way to go” before Frankfurt is done with hiking interest rates. 
• The US Dollar is at a disadvantage since Federal Reserve (Fed) officials are in the two-week blackout period before the May 4 meeting, during which time they are not allowed to comment. 
• Before the blackout, St. Louis Fed’s Bullard was hawkish, saying he expects more rate hikes due to persistent inflation and overblown recession fears.   
• The key data release for the Euro on Thursday, is Eurozone Consumer Confidence in April, out at 9.00 GMT. 
• The main release for the US Dollar is first quarter GDP data, out at 12:30 GMT.  

EUR/USD technical analysis: New triangle potentially forming

EUR/USD reached a new 2023 high of 1.1095 and has rolled over to trade in the mid 1.10s, at the time of writing. The broader medium-term uptrend, however, remains intact – and will continue to – as long as the 1.0830 lows hold. Overall the odds favor a continuation of the dominant Euro bullish trend.

EUR/USD: 4-hour Chart

On the 4-hour chart, EUR/USD looks like it may be forming a triangle pattern, with Wednesday’s highs representing a false breakout. If so, the triangle looks like it may have formed four distinct waves, labeled A-D on the chart above. Since triangles are usually composed of five waves it may be close to completing, with only wave E remaining before completion. 

Triangles can breakout in either direction but, given the dominant trend is bullish, the odds partially favor a breakout higher. As such, a decisive break above the 1.1095 year-to-date highs would confirm such a bullish breakout from the triangle, and a continuation of the Euro’s uptrend to the next key resistance level at around 1.1190, where the 200-week Simple Moving Average (SMA) is located. If the triangle fulfills its full price potential, however, the Euro-US Dollar could even reach 1.1229.  

For the sake of clarity, a ‘decisive break’ might be a ‘breakout candle’ – a long green bullish daily candle that extends above the 1.1075 highs and closes near its high – or three smaller bullish green candles in a row that break above the highs. 

Alternatively, a break and daily close below the key 1.0909 lows would signify a bearish breakout from the triangle, with a target at 1.0805, which in itself could suggest a possible reversal of the dominant trend.