The following guest post is courtesy of ATFX.
The dollar is back under strong pressure as the EURUSD took a leap higher on better than expected Euro Area GDP figures.
Annual Euro area GDP was projected to increase by 1.1%, but instead, increased by 1.2%, which is a slightly higher pace than seen in the prior quarter, and suggests that the Euro area economy is stabilizing despite leading indicators such as the PMIs and IFO suggesting the opposite.
It is unlikely that today’s GDP numbers will have any significant influence on ECB’s monetary policy, and they are still expected to roll out new TLTROs in the next few months which I see as a form of monetary stimulus, and Euro bearish.
However, the bears are quickly losing the grip on the EURUSD direction and if the price trades above the April 24 high of 1.1226, they will have lost their edge in the short-term as the price would then be back trading deep in the descending triangle. If the price trades, above the April 24 high, I suspect the trend in the EURUSD will turn neutral and back trading sideways.
The Fed rate meeting takes place tomorrow, and it might provide some relief, as the market is very dovish compared with the Federal Reserve. The rates markets are currently projecting at least one rate cut with a 62% probability before the end of the year, and two rate cuts with a 20.9% probability. The Fed themselves, project that they will be able to raise rates before the end of the year, while I am not convinced that they will be able to do so I think the market is too dovish to anticipate rate cuts. If the Federal reserve indeed holds firm, and tell the market they will not cut rates this year it might cause the dollar to revisit last week’s low.
On the other hand, if they reduce their forecast to increase rates at least once in 2019, it will fuel the bearish side and could cause the EURUSD to revisit the 1.13 level.
Fed rate meeting projections: