EUR/USD Likely Heading Higher Amid US Data Weakness - Key Trading Levels

• US dollar finds mild support from hawkish Fedspeak for now
• Global PMIs and Core PCE among major macro highlights still to come in May
• EUR/USD technical analysis points higher

The US dollar has been trading inside tight ranges in the last few days due to the lack of any fresh major catalysts and a holiday across most of mainland Europe on Monday. There are no major US data scheduled for today either, although there will be plenty of Fed peak that could potentially impact the US dollar.

So far, the Fed’s tone has remained hawkish, with officials arguing against premature rate cuts. This has helped to provide the greenback some support, even as the markets have brought forward their expectations over the first rate cut thanks to weakness in US data. All told, our EUR/USD forecast remains bullish in the short-term outlook.

US Dollar Finds Mild Support From Hawkish Fedspeak - For Now

While Fed officials have been quite cautious of late owing to sticky inflation signs, the US dollar has been hurt by softer-than-expected data anyway.

This month, most of the data releases have surprised negatively, including the monthly jobs data, the forward-looking manufacturing and services PMIs, as well as data ranging from retail sales to building permits and housing starts. Even inflation data was a tad cooler. However, several Fed officials that have spoken this week, including Michael Ball and Philip Jefferson, have cautioned that inflation was not cooling as quickly as expected.

However, the Fed could be behind the curve. With the economy evidently weakening in the US, it is becoming increasingly difficult to justify maintaining a bullish view on the dollar following the latter’s gains in the first 4 months of the year against a basket of foreign currencies.

This will be especially the case if the trend of disappointing data continues. If so, then one could assume that inflation may ease more rapidly moving forward, reducing the need to keep monetary policy tight for an extended period of time.

Global PMIs and Core PCE Among Major Macro Highlights Still to Come in May

This week, the EUR/USD traders will primarily focus on global PMI data, with particular attention on the Eurozone. From the US, the crucial data will be released on the last day of the month when the core PCE figures are published, a week before the May jobs report. Until then, the dollar’s volatility may remain limited.

There is ample evidence that the US recovery is beginning to wane, while growth in Europe and other regions is starting to gain momentum. Thursday's release of PMI data from the Eurozone and the UK’s services and manufacturing sectors will provide further insights into Europe’s potential recovery.

Are we finally going to see a return to growth in manufacturing PMIs after nearly two years of sub-50 readings for German, French, and UK manufacturers? Even if the pace of contraction slows more than expected, it would still be positive news given the sector's poor performance in recent years.

Here's this week’s economic data calendar relevant to the EUR/USD exchange rate:

EUR/USD Technical Analysis Points Higher

Source: TradingView.com

At the time of writing, the EUR/USD was consolidating inside what looked like a bull flag continuation pattern. Following last week’s 1% rise, the EUR/USD has spent the early parts of this week in a holding pattern amid the lack of any major macro catalysts. But the recent price action has been bullish, and that trend could easily resume as we head deeper into the week.

In terms of support and resistance, the EUR/USD was holding above an interesting short-term level at 1.0850, which has not been breached yet on a daily closing basis. Below this level, additional support levels coming in at 1.0825 and then at 1.0800.

A potential break above short-term resistance and April’s high of 1.0885 could pave the way for a run towards the March high of 1.0981 and possibly the next psychologically important level of 1.10 thereafter.

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