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May 22, 2021

First, a review of last week’s events:

  • EUR/USD. "Some Committee members would consider it appropriate to start discussing the topic of curtailing monetary stimulus if the US economy is moving quickly towards the targets set by the Fed," the minutes of the meeting of the Federal Open Market Committee (FOMC), which was published on Wednesday, May 19, say. The wording is more than vague. But it was against this background that the bears tried to strengthen the dollar and drop the EUR/USD pair down. As a result, having bounced off the high of the last eight weeks at 1.2245, it dropped by 85 points - to support1.2160.
    However, then the markets realized quickly that this phrase, in fact, does not mean anything in reality. And even if the US Federal Reserve starts to discuss in June the possibility of curtailing the QE program and raising interest rates, it is not worth waiting for concrete steps on these issues yet. This "enlightenment" allowed the bulls to return the pair to the 1.2240 high. But they failed to gain a foothold there.
    On Friday, May 21, an increase in the yield on 10-year US government bonds from 1.61% to 1.63% and a decline in US stock indices, coupled with weak German business activity, pushed the EUR/USD pair back to support at 1.2160 once again. The last chord of the week sounded not far from there, at the level of 1.2180;
  • GBP/USD. The British currency is fluctuating following the risk appetite of investors. And naturally, the dynamics of GBP/USD is influenced by the same factors as the previous pair. At the same time, the pound seeks to renew not only the annual, but also the 36-month high at 1.4241, and has almost reached this target.
    Making a forecast for the past week, most experts pointed to the corridor 1.4100-1.4200. And this forecast, with a minimum tolerance, turned out to be almost perfect.
    At the beginning of the week, boosted by positive statistics from the UK labor market, the pair climbed from the 1.4075 horizon to 1.4220. Then, after the rebound, trading shifted a few points to the north, to the range of 1.4100-1.4232.
    On Friday, during the American session, treasuries growth and impressive data from IHS Markit on the US services sector forced the bulls to retreat again, and the pair ended the five-day period at 1.4153;
  • USD/JPY. Most experts were siding with the bears for four weeks in a row, expecting the pair to drop to support at 109.00 and then at 108.35. And their expectations were justified: breaking through the support at 109.00, the pair went further south. True, it did not reach the second goal, and the local bottom was recorded at 108.56.
    The yen was supported by the decline in US bond yields and commodity prices for almost the entire week. Perhaps the pair could go down further, but the rise in oil prices and treasuries yields brought it back to the horizon of 109.00, next to which, at the level of 108.93, it completed the trading session;

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. If in the spring of 2020 the determining factor was the fall of the economy under the blows of coronavirus, a year later everything turned 180 degrees. And now the main driver of the markets has become reflation, that is, the recovery of the economy due to its active stimulation.
    The S&P500 and Nasdaq indices update historical highs over and over again. And investors, despite the overheating of the stock market, sell dollars over and over again in order to buy back sinking stocks and other risky assets.
    Starting March 30, 2021, the DXY dollar index tends to go down, while the EUR/USD pair goes up.  And although Fed officials say that discussions on the possibility of curtailing QE may begin as early as June, this may strengthen the dollar only in the short term. The weakness of recent macro statistics is unlikely to allow the regulator to deprive the US economy of financial support. And if any concrete steps are taken, it is unlikely to happen until the end of this year.
    Of course, no one questions the stable recovery of the US economy. However, this process has recently slowed down noticeably. So, perhaps, it will be Europe that will become an example of recovery from the COVID-19 pandemic. The Eurozone looks much stronger today than it did a few months ago. Accelerating vaccination rates and reducing quarantine measures in many EU countries 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%. And now, an attack by the hawks can be expected at the June meeting of the ECB.
    The European economy is export oriented. Therefore, the Joe Biden administration can also seriously help it by lowering import tariffs imposed by the previous US President Donald Trump.
    All this suggests that the bullish trend for the EUR/USD pair may continue. 70% of experts agree with this forecast, indicating this year's high of 1.2350 as a target. The nearest resistance levels are 1.2245 and 1.2300. In the longer term, we can talk about the growth of the pair to the height of 1.2550.
    The remaining 30% of analysts believe that the overbought US stock market should lead to a large-scale correction, as a result of which the pair will break through the support of 1.2160, first drop to the level of 1.2050, and then reach support in the 1.1985-1.2000 zone.
    Graphical analysis indicates that the EUR/USD pair will stay in the 1.2160-1.2245 trading range for some time, after which it will go south. There is some confusion among the technical indicators on H4. But their readings are more definite on D1: 85% of oscillators and 90% of trend indicators are colored green.
    In terms of macro statistics, Thursday, May 27 seems to be the most interesting. We will find out the volumes of orders for durable goods, as well as data on US GDP on that day;
  • GBP/USD. With improved weather conditions, May is likely to have good spending and business performance in the UK. In addition, the country's government is actively lifting the remaining quarantine restrictions, planning to remove all of them on June 21. All this may lead to the fact that the bulls will still achieve their goal, and the GBP/USD pair will renew the 36-month high at 1.4241. 65% of analysts agree with this forecast, supported by 90% of oscillators and 95% of trend indicators on D1, as well as graphical analysis on H4 and D1.
    True, graphical analysis predicts a fall for the pound in the first ten days of June. The remaining 35% of the experts are also expecting a correction to the south. Support levels 1.4100, 1.4075 and 1.4000
  • USD/JPY. Japan's low CPI (consumer price index), which was released on Thursday May 20, showed that real yields there significantly outperform yields elsewhere. And this is despite the serious weakening of the yen during the first quarter of this year.
    The strong pressure on the yen as a safe haven currency is exerted by global reflation, as well as by the growth of yields on long-term government securities of other countries, especially the United States. For comparison, the yield on 10-year Japanese bonds is 0.25%, while the yield on similar US bonds is 1.63%.
    On the other hand, the yen's purchasing power and the resistance of the Japanese economy to rising prices and inflation speaks in favor of the yen. Published data on the PPI showed that the actual yield on Japanese bonds in April was positive, while their US counterparts, thanks to the Fed's printing press, are sinking deeper below zero.
    Like the four previous weeks, the majority of experts (this time they are 75%) believe that the weakening of the yen has gone too far and it should continue to win back the lost positions from the dollar. Although expectations in this case are quite modest: the targets are the levels 108.55, 108.30 and 108.00. And the support at 107.50 is seen as a very distant target. The remaining 25% of experts expect the pair to return to the 110.00 zone. The nearest resistance is 109.35.
    The indicators on H4 look rather mixed, there is a slight advantage (60%) for the bears on D1. Graphical analysis on both time frames indicates a sideways movement of the pair in the 108.30-110.00 channel;

Forex and Cryptocurrency Forecast for May 24 - 28, 20211


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