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May 16, 2021

First, a review of last week’s events:

  • EUR/USD. As predicted by most experts (60%), the first half of the week benefited the dollar, strengthening it and dropping the EUR/USD pair to support 1.2050. The US inflation report, released on Wednesday May 12, pointed to an impressive rise in April and hit the stock market hard. The consumer price index climbed 0.8%, the strongest monthly gain since 2009. In annual terms, inflation rose by 4.2% versus 2.6% between March 2020 and March 2021 and showed the strongest acceleration since 2008.
    Thanks to this jump, rumors about the possible curtailment of fiscal stimulus programs and an increase in the interest rate on USD began to circulate in the market again.|
    Risk appetite began to fall, the S&P500 and Dow Jones stock indices went down, and the yield on 10-year US Treasuries moved up.
    However, the Fed knows how to restore order in the markets. The regulator explained that this jump in inflation and consumer prices is a temporary phenomenon and is caused in first place by a surge in prices for transport services and used cars. Therefore, the FRS does not intend to either curtail QE programs or raise the interest rate due to the growth of one specific sector of the economy.
    The situation turned 180 degrees after such explanations. Trading volumes in the stock markets rose again, reaching the highest values over the past two and a half months. And the European currency won back about 100 points from the dollar, finishing at 1.2143;
  • GBP/USD. 100% of trend indicators and 85% of oscillators were pointing north last week. But only 30% of experts agreed that the pair, having broken through the upper border of the channel 1.3670-1.4000, would be able to reach the resistance of 1.4085. But it is them who turned out to be right: - the week's high was recorded on Tuesday, March 11 at 1.4165. The next day, the US inflation report pushed the pair down to the 1.4000 level, which turned from resistance to support. The fall was facilitated by profit-taking on the pound after reaching two-month highs. Then a rebound followed, and the pair completed the five-day period at 1.4096;
  • USD/JPY. The forecast for this pair turned out to be quite accurate. Demonstrating an inverse correlation with the DXY dollar index, the yen strengthened on Tuesday May 11, as predicted by 70% of experts, reaching support at 108.35. Then the pair met the expectations of the remaining 30% of analysts and, breaking through the resistance of 109.00, reached a high at 109.78. The last chord of the week sounded at 109.35.

As for the forecast for the coming week, summarizing the views of a number of experts, as well as forecasts made on the basis of a variety of methods of technical and graphical analysis, we can say the following:

  • EUR/USD. Markets have come to their senses again, realizing that there is still a long way to the start of phasing out the US fiscal stimulus programs. Fed officials are constantly reiterating that it will take several more months of steady growth in employment and inflation before discussing a specific time frame for monetary tightening.
    Analysts at BofA Merrill Lynch believe that the behavior of the EUR/USD pair is primarily influenced by what is happening in the United States. However, Europe should not be written off. The Eurozone looks much stronger today than it did a few months ago. Accelerating vaccination rates and reducing quarantine measures suggest an imminent recovery of its economy. The European Commission has already raised its GDP growth forecast for 2021 from 3.8% to 4.3%.
    The loyalty of the US Federal Reserve to a soft monetary policy and calmness about the rise in inflation are putting serious pressure on the dollar. Investors will continue to look for how to protect their capital from depreciation due to inflation. The situation in the US stock markets is on the side of the bulls, which will contribute to the weakening of the American currency. However, at the same time we should not forget about the yield on US Treasury bonds, the growth of which, on the contrary, may provide serious support to the dollar.
    If we talk about technical analysis, then here the complete advantage is on the side of the green. The growth of the EUR/USD pair is indicated by 70% of oscillators and 90% of trend indicators on H4, and, respectively, 85% and 100% on D1.
    But the forecasts of experts do not look so unambiguous. 50% of them believe that the pair will hold out for some time in the side channel 1.1985-1.2180. At the same time, graphical analysis on both timeframes indicates that it will first fall to the lower bound of the trading range.
    30% of analysts vote for the fact that this support will be broken, and the pair will drop another 100 points lower. The remaining 20% indicate to the north, to the zone 1.2250-1.2270.
    As for the events of the coming week, it is worth noting the data on the GDP of the Eurozone for the first quarter of 2021, which will become known on Tuesday, May 18, as well as the speech of the head of the ECB Christine Lagarde on May 18 and 20. A portion of business activity data in Germany and the Eurozone which will be published on Friday 21 May is also of interest; 
  • GBP/USD. The oscillator readings on H4 look quite chaotic, but 85% of them point up onD1 as in the case of EUR/USD. The readings of trend indicators are also similar to the previous pair: 90% of trend indicators look north onH4 and 100% on D1.
    Most experts expect the pair to start the week in the range of 1.4100-1.4200. However, according to 65% of analysts, supported by the graphical analysis on D1, it will be expected to return to support 1.4000, and in case of its breakdown, it will move to the central zone of the channel 1.3670-1.4000.
    As for graphical analysis, it draws the movement in the lateral channel of 1.4000-1.4165 on H4, followed by a breakthrough to the high of February 24 of 1.4240.
    As for the macroeconomic statistics of Great Britain, one can single out the publication of data on the labor market on May 18, the consumer market on May 19 and business activity in the services sector of this country on Friday May 20;
  • USD/JPY. Most experts (65%) have sided with the bears for the fourth week in a row. Support is at the levels 109.00, 108.35, the target is 107.50. The remaining 35% of analysts expect that the pair will once again try to test the resistance of 111.00. The last time it managed to overcome it more than a year ago, in March 2020.
    As for the oscillators on H4, 50% are painted green, 50% are neutral gray. On D1, the neutral position is taken by half as much, 25%. Among the trend indicators, 70% look to the north on H4, and 90% on D1. The graphical analysis readings outline a trading range of 108.85-110.35;

NordFX EU


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