EUR/USD Bulls Still Not Out Of The Woods, Need At Least One Dose Of Optimism

A classic dead-cat bounce or a meaningful correction that foreshadows a rally? The recent 70-pip upward move in EUR/USD has left many traders perplexed amid growing uncertainty on several fronts. Will skies clear on Friday? Here are the critical questions – that may receive some answers as the week draws to a close.

Is the economy improving? US jobless claims have been a bitter disappointment, leaping to 861,000 and ending a winning streak of declines. The stark reminder about the state of America’s labor market contrasted robust retail sales figures for January released beforehand.

Friday’s spotlight is on Markit’s preliminary Purchasing Managers’ Indexes for February. In the old continent, these forward-looking surveys are set to show an ongoing divide between the struggling services sectors – hit by lockdowns – and the humming manufacturing ones. Are managers seeing through the current suffering and into a vaccine-led recovery? That could boost the euro.

On the other side of the pond, Markit’s US PMIs are projected to show robust activity, and that may improve the mood. America also releases existing home sales figures for January, which may add to optimism. Despite the hardship of the pandemic, the housing sector is buoyant.

If US data is rosy, it could cause Treasury yields to rise and boost the dollar. However, if the statistics are only cautiously optimistic, it would lift sentiment while allowing the safe-haven dollar to decline.

The second question for market is: Will President Joe Biden make progress on his covid relief package? Negotiations within his Democratic Party continue and one of the sticking points is if an increase in the minimum wage can be included in the package. Congress is gearing up to vote on as much as $1.9 trillion in aid late next week. Any delay may weigh on markets while positive developments may boost them.

Moreover, there are initial reports that the White House is already mulling a second fiscal stimulus focused on infrastructure and worth some $3 trillion. Details on such spending would also be positive.

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