• EUR/USD returned some of the week’s losses on Friday
  • The move was modest though and the bears remain in charge
  • This week’s news of German recession makes the ECB’s balancing act harder

The week’s big news was that Germany slipped into recession in 2023’s first quarter. It’s by far the Eurozone’s largest national economy, and usually among its most successful, so naturally this news has weighed on sentiment toward the single currency. Germany has had to deal with rising inflation and a reduction in its massive use of Russian energy, a consequence of the war in Ukraine.

The ‘USD’ side of EUR/USD has been supported by rising hopes that Congress will come to heel and pass an increase in the Federal debt ceiling before the end of this month. Treasury Secretary Janet Yellen has warned that Washington will be out of cash by June 1 if it can’t.

A deal remains elusive but the markets are latching onto any signs of progress in the media.

Stronger US data has left markets with the clear impression that the Federal Reserve has leeway to increase interest rates again, should it wish to, without causing as much economic pain to its home economy as the European Central Bank would have to contemplate if it moves again.

The Euro is currently threatening to break down through a daily-chart trendline that has supported the market since late September last year. It provides support at 1.07172 on Friday and it looks as though the bulls will struggle to ensure a daily and weekly close above that level.