- EUR / USD bias remains bullish, but RSI signals overbought conditions.
- A pullback can be seen if the German second quarter GDP shows a larger-than-expected contraction.
While the path of least resistance for the EUR / USD is on the higher side, the currency pair appears overbought and may suffer a pullback if Germany reports a larger-than-expected economic contraction in Thursday’s second quarter.
Wednesday’s profit restored the bull’s bias
The pair rose 0.65% on Wednesday when the Federal Reserve voiced concerns regarding the health of the U.S. job market.
Wednesday’s rise invalidated the buyer exhaustion signaled by Tuesday’s daylight candle and restored the immediate bullish bias.
That said, the 14-day Relative Strength Index reports overbought conditions with an impression above 70 for the 10th consecutive day. As such, a minor pullback cannot be ruled out.
Focus on German data
A preliminary reading of Germany’s gross domestic product (GDP) for the second quarter is expected to show that the economy contracted 11.1% year-on-year in the April-June period, following a 2.3% contraction in the first quarter. trimester. The quarter-on-quarter growth rate is seen falling to -10.9% from 1.9%.
GDP is hindsight and rarely creates huge movements in the market. Furthermore, the recent rebound in the euro reflects the positive outlook for the market for the third quarter. In fact, consumption in France and Germany has recovered to pre-crisis levels, as noted by Kathy Lien of BK Asset Management.
As such, one can consider GDP as a non-event. However, as noted above, the pair is looking for an overbought. In such situations, even sad looking back data elicits a negative reaction. In other words, the EUR / USD may face some selling pressure if the German GDP shows a bigger contraction than expected.
However, the downside seems limited with markets focused on renewed concerns regarding the future course of the US economy. The dollar is likely to experience another wave of sales if the second-quarter US GDP, scheduled to launch at 12:30 GMT, prints below estimates, validating the moderate stance of the Federal Reserve. The Fed kept interest rates unchanged on Wednesday and said the pace of recovery has slowed with the resurgence of coronavirus cases.
At press time, the EUR / USD is trading in the red around 1.1777, after hitting a 22-month high of 1.1807 on Wednesday.
Technical levels
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