EUR/USD Weekly Forecast April 24-28
Frankfurt (April 23) EUR/USD gained in the past week, after forming a base in the week prior, erasing about half of the decline from the peak in late March. A morning star reversal candlestick pattern on a weekly chart suggests further gains for the exchange rate, however, major risk events in the week ahead will ultimately drive the pair.
The first round of the French election takes place on Sunday. If none of the candidates secure a majority vote, which is what polls are suggesting, a second round is to take place on May 7th. If a victory is declared on Sunday, the pair is likely to create a gap at the weekly open.
President Trump indicated on Friday that a tax reform package will be announced on Wednesday. Correlations between the US equity markets and the dollar suggests a recent drop in confidence in the Presidents ability to deliver as both markets turned lower in March. The announcement stands to reverse this, although the gains in the dollar and US equities following Trump’s forewarning on Friday were minimal.
Trump’s comments regarding the value of the dollar on April 12th suggest some efforts will be made to limit the strengthening of the dollar that would be expected from the tax announcement.
ECB President Draghi will reveal the latest stance of the European central bank on Thursday. Draghi has made it clear that although the economy is improving, there is little evidence of it remaining that way on a sustained basis. He dismissed earlier speculation that the central bank was looking to hike rates ahead of the completion of quantitative easing.
It is not expected that the ECB will announce a policy change in the upcoming week. In the unlikely event new developments are revealed, the markets may be caught off guard which stands to cause volatility.
Other economic events that are likely to cause an impact on the exchange rate in the upcoming week include US consumer confidence on Tuesday, durable goods orders on Thursday, and the advance reading of first quarter GDP on Friday.
The latest COT report indicated a fourth consecutive weekly build in the net short held by non-commercials. In the week to April 18th, the position stood at $2.90 billion, up $391 million from the prior week.
Despite some renewed selling interest displayed in the past four weeks, the short position remains at extreme levels as compared to the average size since the currency flipped to a net short in 2014. As a result, the euro tends to carry a higher risk of volatility in the event of a downside move as market participants will look to reestablish positions.
Odds for a US rate hike in June were little changed over the past week with the CME group indicating a probability of 53.4%. Trump’s announcement on Wednesday stands to impact the figure as tax reforms are expected to have a positive influence on inflation and the timing of monetary policy tightening. The Federal Reserve may look to revise up projections depending on the details of the tax package.
EUR/USD starts the new week off above a horizontal level at 1.0710. The spike high from Friday at 1.0775 marks a 61.8% Fibonacci level measured from the March high to April low. A move back above the level, especially if driven by the French election results, would provide a clear signal for a bullish continuation.
Further resistance at 1.0873 marks the spike high from the December ECB meeting and had triggered a turn in March. Strong resistance in the event of an upswing in the upcoming week falls at 1.0911. It marks the spike low posted during the EU referendum and is seen within proximity of the upper line of a rising channel that has encompassed price action for most of the year. There is also a 61.8% Fibonacci level measured from the US election spike high to this year’s low that falls slightly above the level.
The 200-period day moving average will come into play in the event of a bullish continuation and is currently seen at 1.0843.
A sustained drop below 1.0710 support driven by a risk event would signal a reversal. Downside interest in such an event falls at 1.0584 as it triggered a turn earlier this month.
Source: EconomicCalendar
