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Will German GDP/IFO be the catalyst to take EUR/USD back above 1.3000?

FXstreet.com (Barcelona) - The EUR/USD finished the session sharply higher, mainly benefiting from a better than expected European PMI data print. It will be another busy upcoming economic session in Europe, with German GDP due out at 6:00GMT, followed by German IFO at 8:00GMT. One has to ask, if the print comes in better than expected, will it be enough to take the pair back above the critical resistance level of 1.3000?

According to analysts at Rabobank, “there was a modestly firmer tone, maybe a ‘less downbeat tone’ is a better description because despite improvement they remain sub-50, to the suite of eurozone PMIs. In Germany, the Manufacturing PMI gained to 49.0, up from April’s 48.1 and the Services PMI ticked up to 49.8 from 49.6. France’s Manufacturing PMI increased to 45.5 from 44.4 and the Services PMI held steady at 44.3. For the eurozone as a whole, the Manufacturing PMI gained to 47.8 from April’s 46.7.”

They went on to add,“there’s no particularly strong message in these data but they are consistent with our thinking – and that of the ECB – that Europe’s economy will show some improvement as this year unfolds. Calmer financial market conditions should pay a positive dividend to the real economy over time.”

The ‘risk on’ vs. ‘risk off’ sentiment of the equity market will also be something to keep in mind. It was interesting to see the EUR/USD go well bid on a day when the Nikkei dropped 7%. However, its hard to imagine this correlation continuing should US equities start a serious correction. Furthermore, some analysts believe that just because the recent EU PMI data came in better than expected, EU officials will not deviate from the dovish rhetoric which has been plentiful in recent weeks.

According to Kathy Lien of Bk Asset Management, “unfortunately comments from European officials suggest that they are still very worried about the economic outlook and think that more stimulus could be necessary. According to ECB member Praet, the central bank is looking at all possibilities including reviewing the quality of asset backed securities for possible purchases. ECB member Nowotny expects the economy to contract in 2013 and inflation to decline, which suggest that he also supports new stimulus. However he went on to say that the central bank never pre-commits and their decision will in large part be affected by the new economic forecasts published in June.”

According to Val Bednarik of FXStreet.com, “the EUR/USD, recovered over 100 pips from its daily low at 1.2820, but still remains capped below 1.2950 strong static resistance level. In the 4 hours chart positive momentum persists although steady gains above mentioned resistance are now required to confirm further advances towards 1.3000 key psychological level.”

From a longer term technical perspective, short term moving averages are now neutral on the daily chart, while the RSI (14) remains in bearish set up. Given the fact these indicators are not confirming each other, is a sign market participants may be confused at the near term direction of the pair. Furthermore, The ADX (7) on the daily chart continues to display characteristics of non trending market, sloping sharply downward and sitting near the 18.50 area. To conclude, until these indicators start to tell a different story expect choppy trading to continue.

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