EUR/USD Forecast: Sell in May and go away? Fundamentals and technicals point to further losses

EUR/USD has been succumbing to data-fueled dollar strength.
The ISM Manufacturing PMI, concerns about Europe's economy and hawkish Fed comments should keep the pair pressured.
Monday's four-hour chart is showing bears are gaining ground.

Yohay Elam FXStreet

Down in March, up in April and now back down in May? The beginning of last month marked the bottom for EUR/USD and the "sell in May and go away" adage could come into play now.

The euro benefitted from some catching up – the old continent's vaccination campaign ramped up and the common currency got up to speed with this development. However, the economic gap is widening, and it could weigh heavily on euro/dollar.

America grew at an annualized rate of 6.4% in the first three months of 2021, roughly equivalent to a quarterly rate of 1.6%. At the same time, eurozone output shrank by 0.6%. Moreover, components of the US expansion point to an even quicker growth in the second one.

See GDP Analysis: Strong growth now, stronger even later, three reasons for the dollar to rise

Better than expected US Personal Income and Personal Spending figures for March add fuel to the fire. In the meantime, optimism about the euro zone's recovery – as reflected in the upcoming release of Markit's final Manufacturing Purchases Indexes – is mostly in the price.

Several European countries are enjoying a bank holiday on Monday, but the American session could see higher trading volume and perhaps another jolt higher to the dollar. The ISM Manufacturing PMI is set to rise beyond March's 64.7 score. The publication serves as a hint toward Friday's Nonfarm Payrolls.

US ISM Manufacturing PMI April Preview: Let the good times roll

Is inflation coming? Treasury Secretary Janet Yellen rejected concerns that President Joe Biden's spending plans would trigger rapid price rises. She echoed the words of Jerome Powell, her successor at the helm of the Federal Reserve, who made his best efforts to explain why inflation is only transitory.

However, his colleague Robert Kaplan. The President of the Dallas Fed wants the bank to signal to taper of the Fed's bond-buying scheme "soon." Powell is set to speak later in the day. Will he begin leaning toward a more hawkish view?

Can the Fed keep US rates in check?

All in all, euro/dollar has fundamentals reasons to fall.

EUR/USD Technical Analysis

Momentum on the four-hour chart has turned to the downside and the currency pair dipped below the 100 Simple Moving Average in addition to slipping below the 50 SMA earlier on. The Relative Strength Index (RSI) also sheds ground, but it is holding above 30 – thus outside oversold conditions.

Critical support is at 1.1990, just below the psychological barrier of 1.20. That was a clear separator of ranges last month. It is followed by 1.1950, 1.1930, and then 1.1860.

Some resistance is at 1.2050, a support line from last week, and then by 1.2080 and 1.2117, both swing highs on the way up. The April peak of 1.2150 is the next level to watch.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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