Hey! This is Philip with our new weekly outlook of the Forex market.

 

 

 

As the first signs showed last week, the 1.1350 resistance area held, and EURUSD even formed a bearish pin bar on the weekly chart. While the bullish forces have not been extinguished yet, the developments last week suggest some correction to the downside is now likely.

The first support on the way down is at 1.12, ahead of the psychological support at 1.10. The 1.12 zone is particularly interesting at the moment because it is a confluence of past highs and the 100-week moving average. If it holds, it will signal that the bulls are still in control.

To the upside, the 1.1350 zone is the nearest resistance. The more important one remains around 1.17, at the 12-year resistance trendline.

 

 

After more than two months, risk aversion was back in the driving seat last week. In an overall mixed performance (taken by the DXY Index), the Dollar strengthened versus the risky currencies and depreciated against the safe-haven Yen and Swiss Franc.

As was expected, the Fed made no changes to policy at their meeting last Wednesday and pledged to maintain the easing measures for as long as necessary. The overly dovish message is best highlighted with Chair Powell’s own words. “We (the Fed) are not even thinking about thinking about raising rates,” Powell told reports in a video press conference. The dot plot showed FOMC officials expect rates to remain at 0% at least throughout 2022, while they projected GDP growth to contract by 6.5% this year and then to rebound by 5% in 2021.

Yet, despite the clear dovish message the Fed sent, stock markets tumbled, while the safe-haven USD, JPY, and CHF strengthened on risk-off flows. There was no one clear catalyst for the decline in stocks, but a combination of factors such as the massive protests in the USA and the increased risks of a second wave of COVID-19 quelled investors’ optimism. The effect of “buy the rumor sell the fact” probably played a large part in the reversal also, considering that stocks already rose by a staggering 50% from the March lows.

For this week, the main focus will be on the retail sales report, which is expected to show consumer spending rebounded strongly in May. Chair Powell will also testify before Congress on Tuesday and Wednesday. However, these events are unlikely to have a major and direct impact on currencies, but instead, risk sentiment flows are the more likely factor to remain the dominant force. As a result, the Dollar has more scope to strengthen over the coming days, especially given last week’s reversal in risk sentiment.

 

 

The euro remains in a positive spot overall, with investors optimistic about the progress made by European leaders on unifying around the €750 billion crisis recovery fund.

The EU summit takes place this week, where EU heads of state will discuss the recovery fund proposal. The deal is unlikely to be fully accepted at this summit, but depending on what and how much is accepted, the euro may react accordingly. Given the strong rally over the past several weeks, there is a risk of disappointment for EUR bulls around this event, especially if some EU member states oppose the proposal.

Other than that, this week’s calendar is relatively light, with no market-moving events scheduled. Among else, the German ZEW economic sentiment index, Eurozone final CPI, and current account reports will be released.

The euro may consolidate and retrace over the coming days, especially as we go into the stage where the proposals, which fueled the optimism, should now be approved and implemented. The EU has to deliver if the euro is going to keep the positive momentum, or else, the retracement may turn into a reversal.

 

 

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Best Regards,
Philip
Senior Forex Manager
FX Trading Revolution
w: www.fxtradingrevolution.com 

e: philip@fxtradingrevolution.com