The weaker than expected US consumer confidence overnight has helped the euro rally to a new multi-week high against the dollar, and the EUR/USD pair is now testing the key 1.11 resistance, which it failed to break through despite several attempts since mid-March.
EUR/USD rose to 1.0992 on 28 April, its highest since 6 April and from the previous close of 1.0891. The pair is on track to end its third straight week higher, adding to the 2.5% rally over the past two weeks.
US consumer confidence indicator fell to 95.2 for April from 101.4 recorded for March as economists had predicted a rise to 102.5. The Richmond Fed's manufacturing index improved to -3 for April from -8 but the forecasts had averaged for a better -2.
The market is now waiting for a slew of Eurozone economic indicators including Italian business confidence and EU M3 money supply but the most important one from the region would be preliminary estimates of the German CPI due at 12pm GMT.
The consensus for the German consumer price inflation is for a rise in the year-on-year headline index to 0.4% from 0.3% posted for March. The harmonised index is seen up to 0.2% from 0.1% too.
The focus then shifts to the US session as the first quarter GDP data from the world's largest economy will be released at 12.30pm GMT. The annual growth rate of the US GDP is seen slowing sharply to 1% from 2.2% of Q4-2014 as the first three months of this year may have had the impact of bad weather.
That said, the most important event to watch for the week remains the FOMC rate decision scheduled for 6pm GMT. The Fed is not likely to announce the date of the first US rate hike since 2006 but the statement could provide more cues regarding the same.
With the market largely positioning for a negative surprise from the US while risks are more tilted to the positive side for the Eurozone, the EUR/USD pair is likely to successfully break above the 1.11 target.
The pair had failed four times since mid-March below the 1.11 mark as it had been trying to hold the 13 March 12-year low of 1.0462 as a medium term bottom.
Given that the first downward correction after the four attempts to break through the key resistance ended at a higher level than the March low the likelihood of 1.1097-1.1175 being the next target zone is more.
In case of a reversal, 1.0819 will be the important level to watch on the downside, a break of which will open doors to the April low of 1.0520 and then the multi-year low of last month.