EUR/USD Weekly Forecast (25th April 2022 – 29th April 2022)

Fundamental view:

The Euro traded low against the greenback during the trading course of the week. The risk aversion market sentiment and the hawkish Fed was the major catalyst behind the move, however the hawkish surprise from the ECB policymakers favored the Euro and put a cap on the bullish trend of the quote. The vice-president Luis de Guindos said that he believes inflation is close to a peak, however he also added that a rate hike is possible in the second half of the year, depending on macroeconomic data. Also, Governor Pierre Wunsch said that he is willing to consider raising the deposit rate in July.

The need of safe haven due to riskier market sentiment favored the US dollar, The risk sentiment was exacerbated by the coronavirus outbreak in Shanghai and the Ukraine crisis. The Russian invasion of Ukraine accounts for thousands of dead civilians. Moscow’s persistent attacks on Mariupol have resulted in more international sanctions, while the US and several European countries have escalated their weapon provisions to Kyiv. St. Louis Fed President James Bullard made a case for a 75 bps rate hike if needed. Fed Jerome Powell endorsed front-loading rate hikes, confirming a 50 bps lift-off in May.

In this week,  German PPI monthly report on 20th April and US Initial jobless claims on 21st April boosted the uptrend whereas US EIA Crude Oil Stocks Change on 20th April and Eurozone Core CPI monthly report and Fed Chair Powell Speech on 21st April boosted downtrend for the pair.

The major economic events deciding the movement of the pair in the next week are Eurozone Ifo Business Climate at Apr 25, US Core Durable Goods Orders monthly report, US CB Consumer Confidence Index at Apr 26, US GDP quarterly report, US Initial Jobless Claims at Apr 28, Eurozone GDP quarterly report, US Employment Cost Index quarterly report and Michigan Consumer Sentiment at Apr 29. 

EUR/USD Weekly outlook:

Technical View:

Last week’s high was 0.04% higher than the previous week. Maintaining high at 1.0936 and low at 1.0761 showed a movement of 175 pips.

In the upcoming week we expect EUR/USD to show a bearish trend. The currency pair is trading below the 200 Simple Moving Average and the MACD trades to the downside. Should 1.0723 proves to be unreliable support then the pair may fall further to 1.0654 and 1.0548 respectively whereas a solid breakout above 1.0898 will open a clear path upward to 1.1004 and then will further raise up to 1.1073. Chart formation of a rounding top pattern in H4 chart sets prospects for a bearish trend. Bearish engulfing formation in H4 chart escalates the expectation for a bearish trend.

Preference
Sell: 1.0791 target at 1.0655 and stop loss at 1.0903

 

Alternate Scenario
Buy: 1.0903 target at 1.1072 and stop loss at 1.0791

Pound drops with downbeat UK data

  • The UK Retail Sales came in at -1.4% MoM in March which is a downside surprise.
  • Brexit issues might come to fore, weighing on the GBP.
  • Fed- BoE divergence in the monetary policy also weighs on the UK sterling.

 

The UK sterling dropped against the US dollar during Friday trading session. The downbeat UK retail sales is the rationale behind the move.

The UK retail sales arrived at -1.4% over the month in March againstthe expectation of -0.3% expected and -0.5% previous. The core retail sales, stripping the auto motor fuel sales, stood at -1.1% MoM vs. -0.4% expected and -0.9% previous.    

However , the UK retail sales rose by 0.9% in March versus 2.8% expected and 7.2% prior meanwhile the core retail sales decreased by 0.6% in the reported month versus 0.7% expectations and 4.7% previous.

Moreover Brexit issues might come to the fore, weighing on the pound. According to the Financial Times, ”UK prepares law to give ministers power to tear up Northern Ireland post-Brexit trade deal.” The UK government is preparing legislation that will give ministers sweeping powers to tear up the post-Brexit deal governing trade in NI.

Meanwhile, David Frost who negotiated the Brexit deal, and other  Senior Conservatives, have argued for large parts of the agreement between the UK and the EU to be set aside following evidence it is harming trade and creating barriers between Great Britain and Northern Ireland. Any decision to delay the additional checks would spark a fresh row with Brussels, and this would likely weigh on the pound. Brussels has accused British Government of seeking to U-turn on its obligations.

Elsewhere, hawkish Fed strengthens the greenback. Recently, Fed Chief Jerome Powell said that moving a little quicker is appropriate and a 50bps hike will be on the table for the May meeting. He also added that the economy is performing strongly, and the labor market remains tight. Earlier, St. Louis President James Bullard reiterated that the Fed is behind the curve and will not have a hard landing. He emphasized that a 75bps hike had been done, and the world did not come to an end. And on Thursday, San Francisco Fed President Mary Daly noted that the Fed “will likely” raise rates by 50 bps at a couple of meetings.

On the other hand, BoE’s Catherine Mann said on Thursday that she would need to look at whether 25 bps or additional interest rates hikes are required so the BoE could tame inflation. She also added that “If we see rising energy prices and slowing sales, then, in some sense, we are already in stagflation; though, it is a little premature to use such a term.”

GBP/USD 4 Hours Chart:

Support: 1.3007 (S1), 1.2981 (S2), 1.2939 (S3).

Resistance: 1.3075 (R1), 1.3116 (R2), 1.3142 (R3).

The disappointment UK data and the Fed- BoE divergence weighs on the pound. We expect a bearish trend for GBP/USD.

Upbeat Canadian CPI favors CAD

  • USD/CAD under pressure due to hotter Canadian CPI.
  • Commerz bank : Loonie will continue to struggle to make significant gains against the USD.
  • Oil prices rise as market focus on supply drop from Russia, Libya.

 

The US dollar traded low against the Canadian dollar during Thursday due to upbeat CPA data. The Canadian Consumer Price Inflation figures for March saw the YoY rate of headline price growth accelerate to 6.7% from 5.7% in February. Core measures all also saw larger than expected MoM which came at 1.4% and YoY jumps. The upbeat data boosted the expectations that the BoC will follow up last week’s 50 bps rate hike with more hikes of a similar margin at upcoming meetings.

As per the economists at Commerzbank report “On the market more than 75bp are already priced in for the OIS-based rate expectations over the 3-month horizon – i.e. the next two BoC meetings. Depending on whether the US central bank or the ECB is used as a benchmark this seems rather disappointing or quite attractive.”

“The loonie will continue to struggle to make significant gains against the USD even if the market increasingly expects one or more 50bp BoC steps. On the other hand, further CAD-gains against the euro seem possible, in particular in view of the continued war in Ukraine.”

Meanwhile. the rising oil prices favors the Canadian dollar. Oil price is firmer due to a potential European Union (EU) ban on Russian oil came to the fore, days after diminished supplies from Libya rocked the market. As per the Analysts, market volatility is likely to pick up again soon, with the EU still weighing a ban on Russian oil for its invasion of Ukraine, which Moscow calls a “special military operation”.

Libya, a member of OPEC, on Wednesday said the country was losing more than 550,000 barrels per day of oil output due to blockades at major fields and export terminals. The demand outlook in China continues to weigh on the market, as the world’s biggest oil importer slowly eases strict COVID-19 curbs that have hit manufacturing activity and global supply chains.

USD/CAD 4 Hour Chart:

Support: 1.2437 (S1), 1.2379 (S2), 1.2285 (S3).

Resistance: 1.2589 (R1), 1.2683 (R2), 1.2741 (R3).

Amidst all the catalysts creating cautious optimisms for Canadian dollar, we expect a bearish trend for USD/CAD.

Hawkish RBA minutes favors AUD

  • Aussie trades higher around multi-day high level of 0.7420.
  • Hawkish RBA Minutes, Shanghai reopening news underpins the uptrend of Aussie.
  • Hawkish Fed bets acts as a headwind for the uptrend of Aussie.

 

The Australian dollar edged higher against the American dollar during Wednesday trading session amidst hawkish RBA minutes and Shanghai reopening favoring the Aussie.

The RBA minutes revealed that the central bank expects inflation to pick up and that recent developments have brought forward the likely timing of the first-rate hike.

Two things stand out from the April RBA Minutes, analysts at ANZ Bank said as being the following:

  • the case for a cash rate move in June rather than May was strengthened; and
  • the prospect of changes in the gap between the cash rate target and the interest rate on exchange settlement balances was flagged.

 

The encouraging news from Shanghai favored the Aussie. The officials said Wednesday that “the epidemic situation in the city has shown a downtrend in recent days.” The city is set to reopen, with some factories returning to production in closed-loop systems.

Additionally, the conflict in Ukraine has lifted prices for many commodities, boosting the terms of trade for resource-rich Australia.

On the other hand, hawkish fed bets could act as a headwind on the bullish trend for Aussie. Fed’s Jim Bullard reiterated that he wants to quickly get rates up to 3.5%, noting, “You can’t do it all at once, but I think it behoves us to get to that level by the end of the year.”

He added that “more than 50 bp is not my base case at this point.  I wouldn’t rule it out, but it is not my base case here.”  Additionally, he said, “we want to get to neutral expeditiously, I guess is the word of the day.  I’ve even said we want to get above neutral as early as the third quarter and try to put further downward pressure on inflation at that point.”

Meanwhile, Charles Evans, Chicago Fed President said that there is good reason to think the US economy will do very well even as rates rise. He added that the Fed needs to be mindful of a possible wage-price spiral when noting that Fed needs to monitor this.

AUD/USD 4 Hour Chart:

Support: 0.7347 (S1), 0.7318 (S2), 0.7292 (S3).

Resistance: 0.7401 (R1), 0.7427 (R2), 0.7456 (R3).

The hawkish RBA minutes and the Shanghai news encourages Aussie to trade high. we expect a bullish trend for AUD/USD.