EUR / USD exploded after German business expectations suddenly jumped in May and the US dollar weakened. It hit a high of 1.2258, the highest level since January of this year.
German expectations rise
The German economy contracted at a faster rate than expected in the first quarter. According to Destatis, the country’s economy contracted 1.8% in the first quarter after growing 0.3% in the fourth quarter of 2020. This drop was lower than the median estimate of 1.7%. As a result, it decreased by 3.4% on an annual basis.
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According to Destatis, the contraction was mainly due to lockdowns the government put in place to curb the new wave of the pandemic. This led to low household consumption, which fell 5.4%. Likewise, public investment and exports also declined in the first quarter.
However, it is possible that the economy will rebound in the second quarter since the country began to reopen. The government has also accelerated the deployment of the coronavirus vaccine. Indeed, business expectations have started to do well. According to the ifo institute, business expectations fell from 99.2 to 102.90 in May. This was better than the median estimate of 101.4.
During the same period, the current valuation increased from 94.2 to 95.7 while the business climate improved from 96.6 to 99.2. Both were better than the expected 95.5 and 98.2.
The EUR / USD pair also rose due to the weakness of the US dollar. The dollar index fell more than 0.20% as inflation fears eased. The currency also fell against most emerging market currencies like the Chinese yuan and the South African rand. Later today, he will react slightly to the latest data on new home sales in the United States.
EUR / USD prediction
EUR / USD broke above the important resistance at 1.2242. On the four-hour chart, the pair is still above the 25-day and 50-day exponential moving averages while the Relative Strength Index (RSI) has risen above 68. The pair is also slightly above. above the Ichimoku cloud. Additionally, it is above the important ascending trendline that connects the lows this month.
However, the pair appears to be forming an ascending wedge, which is usually a bearish signal. Therefore, in the short term, the uptrend is likely to continue, but there are risks of further weakness.