EUR/USD Forecast May 27-31 – Investors eye EU election, German consumer data


EUR/USD posted moderate gains last week, as the ended the week at 1.12. There are 8 events this week. Here is an outlook at the highlights and an updated technical analysis for EUR/USD.

German numbers were mixed last week. Manufacturing PMI pointed to contraction for a fifth straight month, with a reading of 44.3 in May. Ifo Business Climate slipped to 97.9, its lowest score since February 2010. However, GDP improved by 0.4% in Q1, compared to no growth in Q4 of 2018. The eurozone manufacturing PMI also showed contraction, with a reading of 47.7. There was better news from the services sector, as German and eurozone PMIs were above 50, pointing to expansion.

The Federal Reserve released the minutes of its May policy meeting, reiterating that it planned to be patient. The Fed minutes indicated that although members are more optimistic about economic growth, they remain committed to maintaining current rate levels, given that inflation remains low. It should be noted that the policy meeting took place on May 1-2, one week before President Trump announced new tariffs on China, which has significantly escalated trade tensions between the U.S. and China.

The Fed minutes reinforced the message that no rate moves are planned until next year, but the markets aren’t buying it, with many analysts expecting at least one rate cut in 2019. The CME Group has priced in a 36% likelihood of a 25-point basis cut at the September meeting. The possibility of lower U.S. rates makes the greenback less attractive to investors and could dampen sentiment towards the U.S. dollar.

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

  1. European Parliamentary Elections: Sunday – Day 4. Voters in all 28 EU countries, including the U.K, are voting in the EU election. A strong showing by anti-EU parties could send the euro lower.
  2. German GfK Consumer Climate: Tuesday, 6:00. Consumer confidence has been steady, with two successive readings of 10.4 points. No change is expected in the upcoming release.
  3. Monetary Data: Tuesday, 9:00. M3 Money Supply improved to 4.5% in March, and the April estimate stands at 4.4%. Private loans are expected to climb to 3.3%, up from 3.2% in March.
  4. French Preliminary GDP: Wednesday, 6:45. The French economy is expected to grow 0.3% in Q1, unrevised from the initial GDP estimate.
  5. German Unemployment Change: Wednesday, 7:55. Despite some weakness in the German economy, unemployed numbers continue to fall. In March, unemployment rolls dropped by 12 thousand, beating expectations. The April release stands at -8 thousand.
  6. Spanish Flash CPI: Thursday, 7:00. The fourth-largest economy saw inflation climb to 1.5% in April, its highest level since November. Inflation is expected to slow to 1.2% in May.
  7. German Retail Sales: Friday, 6:00. Retail sales declined by 0.2% in March, better than the estimate of -0.5%. The markets are expecting a rebound in April, with an estimate of 0.4%.
  8. German Preliminary CPI: All Day. Consumer inflation jumped to 1.0% in March, its strongest gain since November 2010. The forecast of the April release stands at 0.4%.

* All times are GMT

EUR/USD Technical analysis

Technical lines from top to bottom:

1.1570 has held in resistance since mid-October.

1.1515 was a high point at the end of January. 1.1435 was a low point at the beginning of February.

1.1390 was a stepping stone on the way up in late January and capped EUR/USD earlier. This is followed by 1.1345.

1.1290 is the next resistance line. Close by, 1.1270 was a double-bottom in December 2018.

1.1215 has weakened in resistance.

1.1119 (mentioned last week) is the next support level.

1.1025 was a cap back in May 2017.

1.0950 is the next support level.

1.0870 was a swing high in December 2017.

1.0820 is the final support line for now.

I am neutral on EUR/USD

The euro has shown limited movement in the second quarter, and the lack of activity could continue. This week’s key event is U.S. GDP for the first quarter. An unexpected result could shake up the pair.

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Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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