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Forex Forecast & Forex Technical Outlook for 13 May 2024 to 17 May 2024

Forex Forecast & Forex Technical Outlook for 13 May 2024 to 17 May 2024

Amidst a busy week, foreign central banks, including the Bank of England, Reserve Bank of Australia, and Banxico, maintained their policy rates. In contrast, the Bank of England adopted a dovish perspective, which stood in contrast to the hawkish approaches adopted by Australia and Mexico. The Riksbank of Sweden reduced its policy rate by 25 basis points to 3.75 percent, as anticipated, and the central bank of Brazil slowed the tempo of monetary easing with a 25 basis point Selic rate cut to 10 percent.

The FOMC unveiled "quantitative tightening" (QT) last week, a strategy to progressively reduce the pace of its balance sheet runoff program. On June 1, the monthly redemption limit for Treasury securities will be reduced to $25 billion. In contrast, the monthly redemption limit for mortgage-backed securities (MBS) will remain unchanged at $35 billion.

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Forex Technical Outlook for 13 May 2024 to 17 May 2024

Let’s see the list of events to look at this week:

  • NZD Inflation Expectations q/q on Monday
  • GBP Claimant Count Change on Tuesday
  • USD Core PPI m/m on Tuesday
  • Fed Chair Powell Speaks on Tuesday
  • US Core CPI m/m on Wednesday
  • US Retail Sales m/m on Wednesday
  • AUD Employment Change on Thursday

EUR/USD

The EUR/USD succumbs to weakness despite attempts to rise, as market participants anticipate the European Central Bank (ECB) will begin implementing rate cuts in June.

Regarding extending the rate-cutting cycle beyond June, the ECB's position is still ambiguous. To stimulate inflationary pressures, some advocate for additional rate cuts after July. However, others, such as Bank of Greece Governor and ECB policymaker Yannis Stournaras, anticipate three rate cuts this year. Stournaras proposes a possible reduction in interest rates for July, attributing it to a moderate economic recovery in the initial quarter. Most notably, the economy of the Eurozone expanded by 0.3% from January to March, surpassing all expectations.

In contrast, Robert Holzmann, the Governor of Austria's central bank and a member of the ECB Governing Council espouses a more prudent approach by expressing apprehensions regarding precipitous or assertive reductions in interest rates.

As significant Eurozone and US economic data are absent this week, EURUSD fluctuations are primarily determined by market sentiment. Conversely, the forthcoming week will shift towards the April publication of the US Consumer Price Index (CPI) data on Wednesday. This event is anticipated to have an impact on investor sentiment.

EUR/USD

In the daily chart of EUR/USD, the current price trades sideways within the descending channel. However, the RSI showed buying pressure by moving above the 50.00 line, while the recent price shows a bullish rejection from the 20-day EMA.

In that case, an upward continuation with a daily candle above the channel resistance could be a potential long signal, creating a long-term bull run.

GBP/USD

The Pound Sterling (GBP) extended its upward trajectory after the robust preliminary Q1 Gross Domestic Product (GDP) figures released by the United Kingdom (UK) Office of National Statistics (ONS). The data indicates a substantial increase of 0.6%, which exceeded the anticipated growth rate of 0.4%. This represents a noteworthy resurgence following the 0.3% decline observed in the last quarter 2023.

The robust GDP growth of the United Kingdom in the latter half of 2023 suggests that it will likely undergo a relatively brief technical recession. The Q1 GDP annual growth rate was 0.2%, consistent with the previous rate of contraction. In contrast to the stagnant year-over-year growth anticipated by investors, the figures surpassed expectations. 

Furthermore, March's monthly GDP growth rate of 0.4% exceeded expectations, surpassing the consensus estimate of 0.1% and the previously reported value of 0.2% (revised up from 0.1%).

GBP/USD

In the daily chart of GBP/USD, the current market momentum is corrective. The most recent price remained sideways at the 20-day EMA line.

As the high volume level is above the current price, the high probable trading opportunity might come after having a bearish pressure below the 1.2471 support level. On the other hand, a buying pressure above the 1.2700 level could alter the current market structure and increase the buying pressure.

AUD/USD

Unsatisfactory economic indicators caused the US Dollar Index (DXY) to decline. The US Bureau of Labor Statistics (BLS) reported that the number of individuals applying for unemployment benefits exceeded expectations. For the week ending May 4, initial jobless claims increased to 231K, exceeding the expected figure of 210K and reflecting growth compared to the previous week's 209 K.

Due to the information above, yields on US Treasury bonds declined. Specifically, the benchmark 10-year note rate fell by approximately four basis points to 4.459%. Simultaneously, the US Dollar Index (DXY), a metric utilized to assess the dollar's performance relative to a collection of six prominent currencies, declined by 0.25% to 105.23 as of the time of writing.

This recent surge of employment data from the United States, released in May, may indicate a cooling labor market. AnZ analysts observed a declining trajectory in job openings by the conclusion of March and the most moderate expansion in nonfarm payrolls in April in the past seven months. Analysts advise a cautious interpretation of a single data set and stress the importance of closely monitoring incoming data for additional signs of a deceleration in the momentum of the US labor market.

AUD/USD

In the daily chart of AUD/USD, the overall market pressure is bullish, where the current price hovers at the crucial trendline resistance. Moreover, the dynamic 20 day EMA is below the current price, with a bullish slope.

Considering the current price action and the RSI’s position, we may expect the buying pressure to extend after having a daily candle above the 0.6650 level.

USD/JPY

In May, the UoM Consumer Sentiment Index decreased to 67.4 from 77.2 in April, which was below the 76 forecast by analysts. The Director of the UoM Survey, Joanne Hsu, emphasized the notable decrease of ten points, asserting that it represents the lowest level of sentiment in roughly six months. The survey findings suggest that Americans are becoming increasingly apprehensive about inflation, unemployment, and interest rates.

In May, inflation expectations increased by a tenth, from 3.0% to 3.1%, whereas expectations for the following decade rose from 3.2% to 3.5%.

After disseminating the data, the yield on a 10-year US Treasury note increased by four basis points (bps) to 4.498%. In addition, the US Dollar Index (DXY) increased by 0.14 percent to 105.35, propelled by renewed concerns of a recession ignited by the UoM survey, which indicates a possible deceleration in consumer spending shortly.

The economic calendar for the United States for the following week will feature the release of inflation and building permit data, as well as speeches by Fed officials.

USD/JPY

In the daily chart of USD/JPY, the recent trend showed a bullish reversal from the 153.58 support level, creating a sell-side liquidity sweep.

As the high volume level is below the current price with a bullish slope in the RSI line, we may expect the buying pressure to extend in the coming days. However, a failure to hold the price above the 20-day EMA could initiate a downside correction before forming a stable trend.

XAU/USD

Gold prices increased substantially last week, notwithstanding the sustained high levels of US Treasury bond yields. Consumer Sentiment, which has fallen to its lowest level in six months, decreased to indicate a growing sense of pessimism among Americans regarding the economy.

Considering the recent deterioration of labor market indicators since the beginning of May and the sentiment data published on Friday, the outlook for the United States (US) economy is bleak. Although concerns regarding a substantial economic deceleration are comparatively muted, investors seeking refuge have contributed to an increase in both the value of gold and the US Dollar.

Throughout the day, Federal Reserve officials delivered prodigious remarks. Raphael Bostic, president of the Federal Reserve Bank of Atlanta, maintained a hawkish posture, predicting that the Fed will likely implement a single rate cut in 2024. In line with the sentiment of sustaining policy stability, Fed Governor Michelle Bowman expressed skepticism regarding the necessity of rate cuts this year. Similarly, Lorie Logan of the Dallas Fed rejected the idea of interest rate reductions.

This week, the US economic calendar features the release of inflation and building permit statistics, as well as speeches by Federal Reserve officials.

XAU/USD

In the XAU/USD daily price, a bullish pennant breakout is visible, possibly forming a bullish impulsive wave.

The dynamic 20-day EMA is closer to the current price with a bullish slope, which suggests a confluence bullish signal. However, a deeper correction is possible if the price comes below the 2291.15 support level with a bearish daily candle, which could lower the price toward the 2200.00 level.

BTC/USDT

Bitcoin (BTC) encountered selling pressure last week, impeding its attempts at a recovery this week. However, the downside potential has been exhausted. 

As institutional buying has decreased and outflows have increased, the demand for Bitcoin has diminished. On Thursday, US ETFs witnessed outflows amounting to $11.3 million, with Grayscale being the only provider to incur negative flows totaling $43.4 million. Significantly, on Thursday, all ETF providers, except Grayscale, documented positive or zero flows for the sixth consecutive day, suggesting a possible trend reversal.

Santiment data indicates a decrease in social volume and dominance metrics this week, which suggests a reduction in mainstream discourse and a decline in FOMO. An increase in sell calls and a decline in purchase calls, especially in the United States, contribute to a greater probability of a market recovery. 

Furthermore, the escalating frequency of references to Bitcoin and the adoption of 'buy the decline' recommendations indicate an intensifying polarization among traders. A significant degree of apprehension signifies the possibility of a relief rally.

BTC/USDT

In the daily chart of BTC/USD, the overall market momentum is bullish, where the 14-day Relative Strength Index (RSI) hovers below the 50.00 line.

The current price creates a potential Inverse head-and-shoulders pattern. A bullish daily candle above the 65613.46 resistance level could be a potential long opportunity, validating the pattern.

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