- EUR/USD has been hovering above 1.21 and may rise on weaker inflation fears.
- Europe's vaccination campaign continues at full force, underpinning the euro.
- Monday's four-hour chart is showing momentum has turned to the upside.
New week, new highs? Perhaps not all euro bulls have begun the week with fresh energies, but the world's most popular currency pair has substantial reasons to rise.
1) Weaker US inflation fears
The main upside driver of the dollar has been fear of rising US inflation, which would force the Federal Reserve to taper down its bond-buying scheme and later raise interest rates. The jump in the US Consumer Price Index (CPI) in April and leap in inflation expectations as seen in the University of Michigan's Consumer Sentiment Index figures for May. However, America is not alone.
China, the world's second-largest economy, reported an annual increase of 17.7% in April's Retail Sales data, substantially below an increase of roughly 25% projected. The Asian giant fueled the rise of commodity prices earlier this century and it pumped stimulus in the wake of the 2008 financial crisis. This time is different.
There is no commodity "supercycle" without China – a rethink about inflation could embolden doves at the Fed and soften the hawks. Federal Reserve Vice-Chair Richard Clarida and several of his colleagues are set to speak out later in the day and they will likely repeat their message that inflation is transitory. That could weigh on the dollar.
2) European shots in the arm
The old continent has been accelerating its vaccination campaign, reaching over a third of the population with at least one dose. Moreover, the campaign is bearing fruit, pushing infections sharply lower:
Source: FT
That is allowing countries to open up and visitors from abroad to revive the beaten tourism industry. The easing of restrictions in the UK — which now allows its citizens to fly abroad – is another piece of good news for Europe.
3) Improving technical landscape
Is EUR/USD setting lower highs or higher lows? That is in the eyes of the beholder – but the four-hour chart is showing that momentum has turned positive. Moreover, the currency pair trades above the 50 and 100 simple moving averages (SMAs). All in all, bulls are in control.
Some resistance awaits at 1.2150, which was the peak in late April and also on Monday. It is followed by 1.2180, which capped EUR/USD last week, and then by 1.2240.
Some support is at the daily low of 1.2125, followed by 1.2110, which held it down last week. Further down, 1.2075 and 1.2055 are eyed.
More EUR/USD Weekly Forecast: Fed may fuel the next leg of rally, bulls eye 1.2240
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. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.