Are Upgraded Eurozone Growth Forecasts Enough To Spark A EUR/USD Reversal?

The last few weeks have seen traders drastically shift their attention when it comes to Europe.The prospect of political upheaval and another showdown on Greece have seen confidence in the outlook wane considerably, translating to added downside pressure on the Euro. Nevertheless, despite the increasing likelihood of adverse scenarios transpiring, the for 2017 and 2018. Adding to the sense of optimism was higher revised projections for inflation alongside more upbeat employment expectations.

After giving up nearly 150 pips last week during a week with limited fundamental data delivered, the EUR/USD might have found its newest catalyst to continue the uptrend begun back in December. However, should the report issued by the European Commission be overshadowed by populist messages of anti-EU parties, it could see the EUR/USD pair come under renewed pressure, especially as breakup fears mount.Following ECB President Mario Draghi’s outline for how a country leaves the Euro Area, combined with comments from German Finance Minister Wolfgang Schaueble, it seems as though Europe’s leaders are already making preparations for the worst-case scenario.

Euro Climbs on Upgraded Projections

The Euro is modestly stronger on the session following the latest winter forecasts released by the European Commission. According to the report, Euro Area gross domestic product is projected to expand by 1.60% during the calendar year compared to the 1.50% anticipated during the estimates published during the fall.Besides 2017 metrics, 2018 growth projections were also revised higher to 1.80% from 1.70%. One of the key takeaways from the report was the more optimistic inflation predictions, with expectations that headline consumer price growth would rise to a 1.70% annualized pace from 1.40% predicted in the fall report.

In another positive mention, unemployment for the monetary union is expected to average 9.60% during the calendar year before falling to 9.10% in 2018.However, it must be noted that the EC report raised several notable risks to the outlook, with the predominant peril being political in nature. With Greece popping back onto the scene as the IMF and Germany fail to reach a compromise, voters are gradually shifting their views, accounting for a significant drop in popularity for German Chancellor Angela Merkel’s Christian Democrat Union party. However, apart from upcoming German elections, French campaigning and the approach of new Italian elections could see the economic outlook deteriorate significantly.

With populist elements in each country questioning the validity of EU membership and the European Monetary Union, this sense of uncertainty is likely to prove a drag on the Euro despite more positive traction for economic fundamentals.Should more Euro-skeptic parties rise to power, it could raise the specter of additional exits akin to the process unfolding in the United Kingdom. Although no imminent exodus of Euro Area members is expected, should these political parties gain clout, it could eventually lead to the point of a breakup if existing structural and political deficiencies are not fixed.With the European Central Bank serving as the primary force behind gains in fundamentals, it will take serious political willpower to restore faith and confidence into the Euro.

Euro Bounces After Report Released

After facing an onslaught last week following surging Euro Area bond yields and uncomfortable political developments, the Euro has managed to bounce back during the first day of the trading week.Besides rebounding from the 50-day moving average which is currently acting as support along with the 50.00% Fibonacci level, the stochastic oscillator momentum indicator is also suggesting the potential for a further rebound in EUR/USD. Should the %K line cross over the %D line to the upside above the 20.0 oversold threshold, it could indicate additional momentum higher in the coming sessions.

The key levels to watch on the upside, should EUR/USD mount a comeback and trend continuation, is the upper channel line of the near-term downward trending bearish channel.Should the upper channel line be broken after the breakout from the prevailing bullish channel earlier in the month, it could set the stage for a run higher towards 1.0795 and 1.0875. Should prices continue to rise from there, EUR/USD will likely encounter a new challenge from the 200-day moving average which is trending lower above the price action.However, if the 61.80% Fibonacci level is broken to the downside, it could open the path towards 1.0445 on the downside over the coming weeks.

What Binary Options Traders Should Watch For

A major upcoming event investors should keep an eye on is the forthcoming second estimate of fourth quarter GDP for the Euro Area. The consensus forecast is calling for 0.50% during the final three months of 2016, matching the first estimate. Any beat is likely to lead to upside momentum in the Euro whereas any revision lower could send EUR/USD tumbling. Besides GDP, inflation data due from the United States could change the trajectory of the US dollar. Rising headline and core inflation figures could foretell of higher rates from the Federal Reserve, increasing the dollar’s appreciation potential. However, absent any major changes, the Euro could once again come under pressure if no new positive fundamental catalysts emerge near-term.