EUR/USD Forecast: Goldilocks for bulls? America's supply chain issues leave room for more gains
Premium|Take advantage of 50% OFF on your first month.
Start your subscription and get access to all our original articles.
You have reached your limit of 5 free articles for this month.
Get Premium without limits for only $9.99 for the first month
Access all our articles, insights, and analysts.
UNLOCK OFFER- EUR/USD has been rising as US yields lose ground.
- Concerns about overheating of the US economy have subsided, leaving room for lower rates.
- Thursday's four-hour chart is pointing to further gains.
Short memory – markets seem to have forgotten Treasury Secretary Janet Yellen's comments on potentially higher interest rates and are rising again. For the safe-haven dollar, it implies a downfall. Investors have refocused on messages from Federal Reserve officials, who stick to the dovish message that inflation is transitory and that the economy has a long way to go.
Eric Rosengren of the Boston Fed and Lauretta Mester of Cleveland – the latter a known hawk – retreated that message. The data suggests that a shortage in skilled workers and bottlenecks in supply chains could cause prices to rise. However, these are supply issues, not demand ones – therefore "good problems" to have.
The imbalance between supply and demand may result in another outcome – less production rather than higher prices. If the economy adjusts by slowing down, that implies the Fed can continue buying bonds at $120 billion/month for longer. The dollar has more room to fall.
The latest evidence of such a cooldown came from the ISM Services Purchasing Managers' Index, which dropped to 60.7 in April, below expectations. The figure for America's largest sector implies a robust expansion, but not overheating. ADP's private-sector labor market figures also fell short of estimates with under 800,000 new positions. Both publications lower expectations for Friday's Nonfarm Payrolls report.
US Services and Manufacturing PMI, ADP Employment: Disappointment is relative
The vaccination picture is also shifting in favor of the euro. The old continent is ramping up its immunization effort, with around 30% of Europeans already having received their first shot. The US is still ahead with 45%, but the gap is narrowing.
All in all, fundamentals allow for further gains.
EUR/USD Technical Analysis
Euro/dollar has topped the 100 Simple Moving Average on the four-hour chart and momentum has flipped to the upside – both bullish developments. It is still below the 50 SMA , which is the first resistance line, at 1.2060.
Further above, 1.2080, 1.2120 and 1.2150 await the currency pair.
Support is at 1.2025, a swing low from last week, followed by 1.1990 and 1.1945.
- EUR/USD has been rising as US yields lose ground.
- Concerns about overheating of the US economy have subsided, leaving room for lower rates.
- Thursday's four-hour chart is pointing to further gains.
Short memory – markets seem to have forgotten Treasury Secretary Janet Yellen's comments on potentially higher interest rates and are rising again. For the safe-haven dollar, it implies a downfall. Investors have refocused on messages from Federal Reserve officials, who stick to the dovish message that inflation is transitory and that the economy has a long way to go.
Eric Rosengren of the Boston Fed and Lauretta Mester of Cleveland – the latter a known hawk – retreated that message. The data suggests that a shortage in skilled workers and bottlenecks in supply chains could cause prices to rise. However, these are supply issues, not demand ones – therefore "good problems" to have.
The imbalance between supply and demand may result in another outcome – less production rather than higher prices. If the economy adjusts by slowing down, that implies the Fed can continue buying bonds at $120 billion/month for longer. The dollar has more room to fall.
The latest evidence of such a cooldown came from the ISM Services Purchasing Managers' Index, which dropped to 60.7 in April, below expectations. The figure for America's largest sector implies a robust expansion, but not overheating. ADP's private-sector labor market figures also fell short of estimates with under 800,000 new positions. Both publications lower expectations for Friday's Nonfarm Payrolls report.
US Services and Manufacturing PMI, ADP Employment: Disappointment is relative
The vaccination picture is also shifting in favor of the euro. The old continent is ramping up its immunization effort, with around 30% of Europeans already having received their first shot. The US is still ahead with 45%, but the gap is narrowing.
All in all, fundamentals allow for further gains.
EUR/USD Technical Analysis
Euro/dollar has topped the 100 Simple Moving Average on the four-hour chart and momentum has flipped to the upside – both bullish developments. It is still below the 50 SMA , which is the first resistance line, at 1.2060.
Further above, 1.2080, 1.2120 and 1.2150 await the currency pair.
Support is at 1.2025, a swing low from last week, followed by 1.1990 and 1.1945.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.