EUR/USD pressured as Eurozone boosts economic forecast

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jul 7, 2021
  • The EUR/USD pair retreated even after a positive report by the European Commission.
  • The commission expects that the Eurozone economy will grow by 4.4% this year.
  • The German industrial production declined in May because of chip shortages.

The euro (EUR/USD) was little changed on Wednesday after the European Commission boosted the economic forecast for 2021 and 2022. The pair is trading at 1.1828 where it has been in the past few sessions. The EUR/GBP and EUR/CHF are also unchanged at 0.8562 and 1.0916, respectively.

Eurozone GDP forecast boosted

According to the latest data by the European Commission, the Eurozone economy is expected to rebound at a faster rate than expected. The agency expects the economy to recover by 4.8% this year and by 4.5% in 2022. This forecast was better than the previous estimate of a 4.3% and 4.4% increase, respectively. As a result, they expect that the economy will move to pre-pandemic levels in the fourth quarter of 2021.

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The Eurozone economy is set to recover faster than expected because of the ongoing vaccination drive and the access to the recovery fund. The important tourism industry is also set to resume and provide a boost to countries like Italy and Spain. Most importantly, the sector will do well because of strong local and international demand. In a statement, EU’s Paolo Gentiloni said:

“The EU economy is set to see its fastest growth in decades this year, fuelled by strong demand both at home and globally and a swifter-than-expected reopening of services sectors since the spring.”

Still, the EU economy faces significant challenges ahead. For example, the number of coronavirus cases has continued to increase in the past few days. The situation is worsening in countries like Spain and France, where the number of infections has surged.

The EUR/USD also reacted to the relatively weak German industrial production data. According to Destatis, the country’s production declined by 0.3%, leaving it 5% below its pre-pandemic level. This trend is mostly because of the chip shortage that has affected the auto sector. Vehicle production has declined in the past five straight months.

EUR/USD technical analysis

EUR/USD
EUR/USD chart

The four-hour chart shows that the EUR/USD declined sharply this week. It also managed to drop below the important support at 1.1846, which was the lowest level on June 21st. The price is also slightly below the 50-day volume-weighted moving average (VWMA). Further, it seems to be forming a bearish flag pattern, which is usually a bearish sign. Therefore, the pair will likely keep falling as bears target the next key support at 1.1750.

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