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EUR/USD: euro rallies amid broader US dollar weakness, but key risks remain

EUR/USD is back at trading close to its recent range near the $1.085, after a rally to end the week. Traders will be focused on this weeks’ ECB policy meeting on Thursday, as the eurozone economy comes under mounting pressure.

EUR/USD pushes higher amid greenback selloff

EUR/USD staged a turnaround on Friday, after continued selling pressure throughout the week saw the euro fall to new one-month lows at $1.072.

However, after breaking through daily and weekly support levels the euro didn’t capitulate, as USD sellers gained the ascendancy to end the week.

As a result, EUR/USD found momentum in Friday trade to finish the week at $1.0821, as the greenback lost ground against all the major pairs.

That relative lack of USD strength extended into Asian trade on Monday, as EUR/USD climbed back to the range either side of the $1.085 level where it traded for most of last week.

Looking ahead, it’s a relatively quiet start to the week on the data front, with the Federal Reserve Bank of Dallas' Texas Manufacturing Outlook Survey the only release of note for EUR/USD traders.

Thursday will highlight the calendar this week, with a deluge of key data and events across Europe and the US that could drive price action for the world’s most high-volume trading pair.

The ECB will headline the Thursday schedule with its monthly policy announcement. Analysts at Westpac expect the central bank will 'call on fiscal authorities to do more' as it keeps monetary policy settings at emergency levels.

There’s also March unemployment data, first quarter (Q1) GDP figures and the April inflation print for the eurozone, while US data will be led by the personal consumption expenditure (PCE) inflation indicator for March.

Despite rally, outlook for the Euro remains uncertain

While the euro found support to end the week, it followed a closely watched meeting of EU finance leaders regarding the terms of a Covid-19 rescue package.

While member states made tentative progress, details around the specific size and nature of the fund – which is expected to top €1 trillion – still haven’t been ageed to.

German Chancellor Angela Merkel offered her provisional support for a combined rescue fund, but some member states are pushing for simple transfers of grant funding, while others advocate for funds to be allocated via loans that will have to be paid back.

With Q1 GDP expected to be weak as the initial impact of the Covid-19 pandemic spread across the economy, traders will be watching for any additional stimulus proposals when the ECB meets on Thursday.

EUR/USD was able to shrug off the sharp slump in German and French private sector involvement (PSI) activity last week to hold steady within its current trading range.

However, as long as the impasse on support funding remains in place, the euro is expected to face broader downside pressure as the economic fallout from the pandemic becomes more exacerbated in the June quarter.

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

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