• The shared currency is about to finish the week with 1.66%.
  • US Core PCE rose by 4.9% YoY, lower than March’s 5.1% reading; will the Fed diminish the speed of rate hikes?
  • EUR/USD Price Forecast: Its long-term bias remains bearish, but a rally towards 1.0800 in the near term is on the cards.

The EUR/USD reached a fresh four-week high, around 1.0765, but in the last hour, retreated some 30 pips, as the New York session wanes, on an upbeat trading session, courtesy of positive US data. At 1.0735, the EUR/USD is set to record weekly gains of 1.66% amidst a week full of ECB officials’ hawkish commentary and mixed US economic data.

US inflation eases some, and further ECB hawkish commentary lifts the EUR/USD

On Friday, the US Commerce Department unveiled inflation figures for the country. The Fed’s favorite gauge, the Core PCE for April, increased by 4.9% YoY, aligned with forecasts but lower than the March reading. That easied investors’ worries regarding an aggressive US central bank, with some of its members, like St. Louis Fed President James Bullard, expecting rates to finish in the 3.25-3.50% range.

In fact, during the week, Atlanta’s Fed President Raphael Bostic, usually a hawk, commented that once the Fed is done with 50 bps increases in the June and July meeting, it might pause as they assess the economy’s reaction.

In the meantime, the EUR/USD jumped on the release, towards 1.0750, though retraced the move, dipping towards 1.0700. However, in the middle of the North American session, the EUR/USD recovered some ground and settled above April’s 2020 lows of 1.0727.

Meanwhile, during the European session, the Bundesbank President and ECB member Joachim Nagel said that he believes the first-rate raise move should come in July, with more to follow in the second half of 2022. He added that inflation would not fall overnight, and it could take some time.

Next week, the Eurozone macroeconomic docket will feature Headline Inflation for Germany and the Euro area. Both headline figures are expected to rise to new highs, but core EU inflation is foreseen to fall to 3.4%. Another event triggering EUR/USD traders’ reaction would be the EU Council Meeting.

On the US front, the docket will reveal the May ISM Manufacturing and the Business related PMIs, Fed speakers, and employment data on the US front.

EUR/USD Price Forecast: Technical outlook

The EUR/USD advanced in the day and pierced the 50-day moving average (DMA) at 1.0746, pushing towards 1.0765 (new weekly highs). However, EUR/USD bulls’ failure to sustain the rally dragged spot prices below the abovementioned. However, they could remain hopeful as the Relative Strength Index (RSI) at 56 persists in bullish territory, aiming higher.

That said, the EUR/USD’s first resistance would be the 50-DMA. A break above would expose the March 7 low-turned-resistance at 1.0805, followed by April’s 21 high at 1.0936.

 

  • The Australian dollar extends its weekly rally to two straight weeks, up 1.68%.
  • The AUD/USD rises on positive Australian and US economic data as recession fears wane and expectations for a non-aggressive US Fed.
  • Next week, the US economic docket will be busy and will feature releases of ISM PMIs, Fed speakers, and employment data to digest.

The Australian dollar reclaims the 0.7100 mark and records a fresh three-week high, up 0.83%. At 0.7159, the AUD/USD reflects the upbeat market sentiment amid the release of high US inflation, though ticking down from the March reading.

Investors cheered that US inflation is back below 5%, and US equities climb

Before Wall Street opened, the US Department of Commerce revealed that inflationary pressures in the US are still high but lower than in March. The Core Personal Consumption Expenditure (PCE), the Fed’s favorite inflation gauge, rose by 4.9% YoY, higher than the recorded in March of 5.1%. The market reacted positively to the news, turning towards riskier assets, as they discount that the Fed might pause or slow the pace of tightening conditions.

In the same release, consumer spending increased by 0.9% in April and beat the street’s forecast as consumers boosted purchases of goods and services, a sign that could underpin US economic growth in the Q2 amid increasing worries of a recession.

Elsewhere, during the Asian session, Australian Retail Sales for April rose by 0.9% as expected, marking a rise for four consecutive months, depicting the resilience of consumers, albeit a higher inflation reading, around 5.1% in the Q1.

The release of upbeat economic data for Australia and the US helped risk appetite. That triggered the so-awaited upside break on the AUD/USD, clearing the previous weekly high at 0.7126. As the North American session winds down, the AUD/USD settled in the mid-range of the 0.7100-0.7200 area.

In the week ahead, the Australian docket will feature the Real GDP for Q1. TD Securities analysts expect them to rise by 1.2%, higher than expected. They added that “Growth momentum probably slowed in Q1 as economic activity was interrupted by the Omicron wave and floods in Queensland and NSW. However, we think these shocks are temporary as domestic demand should be relatively resilient, as reflected in the strong Q1 retail sales outturn. We expect the RBA to make a bolder policy move in June as the economy is on a strong footing.”.

On the US front, the docket will reveal the May ISM Manufacturing and the Business related PMIs, Fed speakers, and employment data.

Key Technical Levels

 

  • The Canadian dollar is recording goodish gains in the week of 0.85%.
  • A positive market sentiment boosted the appetite for high-beta currencies, like the CAD.
  • USD/CAD Price Forecast: To face solid support around 1.2694-1.2700.

The USD/CAD edges lower in the North American session, extending its weekly losses for the third consecutive week as investors shrugged off an “aggressive” US Federal Reserve, as Core PCE rose to 4.9% but ticked down from 5.1% YoY. At the time of writing, the USD/CAD is trading at 1.2727.

US equities remain positive, reflecting a risk-on mood. The S&P 500 is about to erase its May losses, as the US Commerce Department informed that inflation increased at a slower pace than in March. Will the Fed slow the pace of hiking rates after reaching the 2% threshold?

Although inflation is heading lower, ING analysts noted that some factors lurk in the economic environment. First, the geopolitical backdrop keeps pushing energy prices higher. Second, China’s zero-covid policy slowed down the improvement in the supply chains, and thirdly, the tight labor market needs to mitigate a wage-price spiral.

Elsewhere, the USD/CAD on Friday began trading near the day’s highs at 1.2784 but slid towards three-week new lows around the 1.2720 area.

USD/CAD Price Forecast: Technical outlook

USD/CAD remains upward biased, though its two-week downtrend will face a solid support area in the 50 and the 100-day moving averages (DMAs), around the 1.2704-1.2693 area. Nevertheless, USD/CAD bulls need to be careful and not overconfident that the aforementioned level would hold. Why? The Relative Strength Index (RSI) at 44.29 is aiming lower, well within bearish territory, and with enough space before reaching oversold conditions.

If the USD/CAD two-week downtrend extends, the major’s first support would be the 1.2693-1.2704 area. Break below would expose the 200-DMA at 1.2658, followed by the April 22 low at 1.2566. On the flip side, the USD/CAD first resistance would be 1.2800. Once cleared, the following supply region would be the 20-DMA at 1-2862, followed by the March 8 high at.1.2901.

Key Technical Levels

 

  • The USD/CHF is registering losses of 1.68% as the weekend looms.
  • A risk-on market mood capped the USD/CHF fall as safe-haven appetite decreased.
  • USD/CHF Price Forecast: If bulls are to regain control, a daily close above 0.9600 is needed.

The Swiss franc is set to finish for the second consecutive week with hefty gains, as shown by the USD/CHF losing 1.68%. On Friday, in the North American session, the USD/CHF ticked down some 0.07%, trading at 0.9583 at the time of writing.

Sentiment remains upbeat, once the Fed’s favorite measure of inflation, although it came near 40-year highs, easied from the 5% threshold to 4.9% YoY. US equities are climbing during the day. Even the S&P 500 has almost pared its monthly gains in what seems to be a relief rally, as investors backpedaled from an “aggressive” Fed tightening cycle.

In the meantime, the US Dollar Index, a gauge of the greenback’s value, post-minimal gains of 0.05%, is sitting at 101.812. Contrarily US Treasury yields remain flat, led by the 10-year benchmark note, stationary at 2.749%.

USD/CHF Price Forecast: Technical outlook

Friday’s price action pushed the USD/CHF towards fresh five-week lows, near 0.9545 but bounced from under the 50-day moving average (DMA) around 0.9567, as USD/CHF bulls get ready to launch an assault towards 0.9600, so they can keep the uptrend intact. However, to their detriment, oscillators remain in bearish territory through directionless, opening the door for a consolidation.

Upwards, the USD/CHF first resistance would be 0.9600. Break above would open the door for additional supply zones. Firstly the May 26 daily high at 0.9632, followed by the June 5, 2020, high at0.9652. On the other hand, the USD/CHF first support would be the 50-DMA at 0.9567. Latter’s breach would expose the Bollinger’s band bottom band, at 0.9511, followed by a re-test of the 0.9500 figure.

Key Technical Levels

 

The USD/INR is about to end the week modestly lower, pulling back from record levels. The chart shows the primary trend is bullish and strong. According to analysts at Wells Fargo, the rupee will continue to decline versus the US dollar, at a gradual pace. 

Key Quotes: 

“The Indian rupee recently hit an all-time record low against the dollar, and going forward, we expect the currency to continue making new lows against the greenback. We believe the rupee will continue to weaken as the Reserve Bank of India (RBI) is likely behind the curve in tightening monetary policy.”

“While we forecast the RBI to lift interest rates again in June, we doubt RBI policymakers will be able to keep pace with the Federal Reserve.”

“As the Fed raises interest rates and shrinks its balance sheet, the U.S. dollar should rally against most emerging market currencies, including the rupee.”

“While we expect the rupee to consistently hit new lows, we believe the pace of depreciation will be gradual in nature. The RBI maintains a hefty stockpile of foreign exchange reserves and uses these asset buffers to limit rupee volatility. Recently, RBI FX intervention contained currency volatility, and going forward, we expect intervention efforts to continue to keep rupee depreciation orderly.”