EURUSD, GBPUSD, USDJPY
Weekly Forex Analysis
(May 11 - May 15, 2020)
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US Dollar Fundamental Outlook:
The US jobs data last Friday was horrific, as economists expected, though slightly less weak than the consensus forecasts. Currencies, however, remain in this broader range for the time being as all the bad news about the economy is already largely priced in by markets.
The Fed is keeping a lid on the Dollar, and most other central banks are also doing money-printing via emergency easing programs to support their economies. Thus, all this convergence between the major world economies and their central banks is for now keeping the currency market broadly in a range. That is, of course, not the case with emerging market economies, which are especially feeling the heat of this Corona crisis (e.g., Turkish Lira).
The focus on the USD calendar this week is on Tuesday’s CPI inflation and Friday’s retail sales. The inflation reports are expected to start showing the deflationary impact of the recession and low oil prices. At the same time, retail sales will confirm consumer spending has plunged on a massive scale.
Nonetheless, the economic releases are unlikely to move the Fx market much this week either, and the Dollar is likely to remain broadly range-bound for now.
Euro Fundamental Outlook:
The Euro was struck hard last week after the German constitutional court ruled that the ECB may have crossed the lines of its mandate with the QE asset purchases. The highest court in Germany gave the ECB a 3-month ultimatum to justify the asset purchases or the Bundesbank will not be allowed to participate in the QE program.
While for the moment no major actions were taken and three months is a relatively long period over which the situation may be resolved, this decision by the German constitutional court is only adding to the existential risks for the EU and the Euro currency. A breakup of the EU could be the main risk for the single currency over the coming months, and that is already keeping it pressured to the downside. If some of these risks escalate, then the Euro currency
will plunge even deeper and faster.
However, the fact that for now, EU leaders are keeping everything under control is helping the Euro to stay relatively stable. Thus, the Euro also is likely to follow the overall range-bound spirit of the market over the short-term horizon.
On the EUR calendar, flash (preliminary) German Q1 GDP is scheduled for Friday and is expected to show a contraction of -2.2% in the first quarter of 2020.
EURUSD Technical Outlook:
Taking a look at the weekly EURUSD chart, we can clearly see the compression in the price action due to the tight 1.08 – 1.10 range. We discussed this range on the daily chart last week, and nothing has changed substantially since.
The 1.08 level and the 1.07 low remain the immediate support zones. Below them, the 1.05 area will come into focus on the weekly chart.
To the upside, 1.10 is the first resistance. The bigger weekly resistance is likely to be found around the 1.1350 confluence area and then toward the 1.15 area.
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