Euro faces a bearish scenario ahead

WE started off the month of May on a relatively quiet note; China and UK banks were closed in observance of Labour Day while Japan observes Greenery Day and Children's Day on May 3 and 4 respectively. In the US, Amazon's first-quarter sales and earnings exceeded expectations - in part fuelled by the third round of US stimulus cheques which likely contributed to rise in online shopping activity due to the Covid-19 pandemic. Thus, the country reported a better than expected consumer spending data for March 2021.

On the European front, Germany has been struggling to contain a third wave of the Covid-19 virus, in part due to the more contagious B117 variant which surfaced in Britain. This resulted in Chancellor Angela Merkel drawing up legislation that gave the federal government more powers to impose tougher lockdown rules after several states refused to enact stricter measures. Hence, the EUR/USD currency pair traded lower on April 30, in part due to the measures announced.

However, the mood is not totally sombre for the euro as German retail sales month on month came out considerably stronger than expected - 7.7 per cent versus the forecast rate of 2.9 per cent. In addition, Italy reported a fall in the average number of Covid-19 cases over the past few weeks. Although this calls for some level of optimism in the euro, the technicals say otherwise.