EUR/USD Forecast May 31-June 4 – Investors eye PMIs, inflation

0

EUR/USD was almost unchanged last week, as the pair ended the week just shy of the 1.22 line. There are six releases in the upcoming week. Here is an outlook at the highlights and an updated technical analysis for EUR/USD.

In Germany, GDP declined in the first quarter, with a read of -1.8%. Ifo Business Climate improved to 99.2 in May, up from 96.6. However, GfK Consumer Climate remains mired in negative territory and came in at -7.0 in May. France’s economy posted a small decline of 0.1% in Q4.

In the US, Conference Board Consumer Confidence Consumer Confidence held steady in May, at 117.2. This was down marginally from 117.5 in April. Second-estimate GDP for the first quarter came in unchanged at 6.4%, confirming the initial reading. Unemployment claims fell to a new post-Covid low of 406 thousand, down from 444 thousand. Durable goods orders disappointed with a reading of -1.3% in April, its second decline in three months. 

The PCE index, the Fed’s preferred inflation gauge, jumped to 3.6% in April, up from 2.2%. This could lift the US dollar if investors believe that the Fed will re-evaluate whether to taper QE sooner rather than later.

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

  1. German CPI: Monday, All Day. German inflation rose to 0.7% in April, above the forecast of 0.5%. CPI is expected to slow to 0.3% in May.
  2. Monetary Data: Monday, 8:00. M3 Money Supply slowed to 11.6% in March, down from 12.3%. The downswing is expected to continue in April, with a forecast of 9.5%. Private Loans rose to 3.3% in March and the estimate for April stands at 3.5%.
  3. Manufacturing Final PMIs: Tuesday, 7:50 in France, 7:55 in Germany, and 8:00 for the whole eurozone. Eurozone manufacturing continues to show robust growth. The final readings for April are expected to confirm the initial readings, which came in at 64.0 in Germany, 62.8 in the eurozone and 59.2 in France. The neutral 50-level separates contraction and expansion.
  4. Inflation Report: Tuesday, 9:00. Eurozone inflation has been accelerating in recent months. Headline CPI is projected to rise to 1.9% and Core CPI is expected to tick higher to 0.9%.
  5. Services Final PMIs: Thursday, 7:50 in France, 7:55 in Germany, 8:00 in the whole eurozone. The services sector continues to show expansion. The initial readings for April came in at 52.8 in Germany, the eurozone at 55.1 and France at 56.6. The final readings are expected to confirm the initial releases.
  6. Eurozone Retail Sales: Friday, 9:00. Retail Sales posted a strong gain of 2.7% in March. Will we see another gain in the April release?

.

Technical lines from top to bottom:

1.2412 (mentioned last week) is an important monthly resistance line.

1.2303 is next.

1.2242 switched to resistance after EUR/USD fell sharply on Wednesday.

1.2123 is the first support level.

1.2065 switched to support in mid-May when the euro started a strong rally.

1.1961 is the final line for now.

.

I am neutral on EUR/USD

Covid is slowly receding in Western Europe, as the vaccine rollout continues. In the US, a high inflation reading on Friday could renew speculation about tapering, which would be bullish for the US dollar.

Further reading:

Get the 5 most predictable currency pairs

About Author

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.