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Forex Forecast & Forex Technical Outlook for 20 May 2024 to 24 May 2024

Forex Forecast & Forex Technical Outlook for 20 May 2024 to 24 May 2024

Despite an abundance of economic data this week, only a fraction of it had a substantial impact on the macroeconomic environment. Positive inflation data were released in April; should this trend persist, the first rate cut is anticipated in September.

Unexpectedly, wage growth increased in the United Kingdom. However, the underlying data was moderately encouraging, which allowed us to maintain our prediction of an initial rate cut by the Bank of England in August. Quarter-over-quarter annualised GDP contraction in Japan exceeded expectations at 2.0%. Inflation in the Swedish CPI continued to approach the target, providing support for the central bank's decision to loosen monetary policy last week. Retail sales declined while industrial output increased in China, and CPI inflation in India decelerated less than anticipated.

Market participants' expectations for the total amount of Fed easing this year have been significantly reduced, but recent data maintains the likelihood of a 25 basis point (bps) rate cut at the September meeting.

In line with the tenacious consumer, who has bolstered the U.S. economy throughout this cycle but now appears positioned to curtail expenditures, enterprises continue to operate in a stable manner but display indications of forthcoming fragility, most notably an abrupt surge in business insolvencies over the previous year.

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Forex Technical Outlook for 20 May 2024 to 24 May 2024

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

  • CAD CPI m/m on Tuesday
  • BOE Gov Bailey Speaks on Tuesday
  • RBNZ Official Cash Rate and Monetary Policy Statement on Wednesday
  • FOMC Meeting Minutes on Wednesday
  • German and French PMIs on Thursday
  • GBP Retail Sales m/m on Friday

EUR/USD

The EUR/USD pair recovered last week, bolstered by improved market sentiment concerning forthcoming interest-rate cuts. Notwithstanding the endorsement by Federal Reserve (Fed) officials for an extended implementation of restrictive monetary policy, this recovery transpired. 

Before that, the US Dollar had been momentarily stabilized by these remarks after its steep decline, sparked by the April Consumer Price Index (CPI) report that revealed a decline in US inflation. However, the dollar has once more declined due to intense speculation that the Federal Reserve will initiate interest rate cuts at its September meeting.

The US Dollar's recovery is the primary driver of the EUR/USD pair's recovery. Despite this, the Euro continues to appeal as policymakers at the European Central Bank (ECB) express skepticism regarding continuing the rate-cutting cycle beyond the anticipated June reduction.

A member of the ECB Board, Isabel Schnabel, commented on the uncertainty that has ensued since the June rate reduction during the early London session. The speaker highlighted that recent inflation figures indicate that the last stage of deflation is especially difficult to navigate and warned of the inflationary dangers that may result from imprudent reductions in interest rates.

EUR/USD

 

In the daily chart of EUR/USD, a prolonged buying pressure is seen, taking the price above the 100-day SMA line. Moreover, the Relative Strength Index (RSI) showed an optimistic outlook for bulls by remaining above the 60.00 line.

In that case, a bullish continuation might find resistance at the 1.0941 level, from where downside pressure might come. Overcoming this level could see the 1.1139 level as the next resistance.

GBP/USD

The Pound Sterling (GBP), which had reached a new monthly high of 1.2700 on Thursday. The upward momentum is being challenged as investors shift their focus toward the April Consumer Price Index (CPI) data from the United Kingdom, which is scheduled for release on Wednesday.

These UK inflation figures will provide fresh perspectives on the interest rate outlook. At present, investor sentiment is divided regarding whether the Bank of England (BoE) will initiate interest rate reductions in August or June.

The inflation data for April is anticipated to influence the subsequent movement of the pound sterling materially. Following the February CPI data release for March on April 17, BoE Governor Andrew Bailey predicted that "Inflation in the UK will fall near its 2% target next month" and stated that the rate of decline has been roughly consistent with this forecast. 

Bailey additionally predicted, as reported by Bloomberg, that "next month's figure will demonstrate a significant decline due to the distinctive energy pricing system in the United Kingdom that applies to residential energy."

GBP/USD

In the GBP/USD daily chart, the recent price showed a bullish recover after forming a re-accumulation and manipulation phases. A successful breakout above the 100 day SMA line suggests an upward continuation possibility, while the RSI holds the buying pressure above the 60.00 level.

In that case, any minor downside correction could be a long opportunity, targeting the 1.2900 psychological line.

AUD/USD

The lacklustre CPI figures were consistent with recent remarks by Federal Reserve Chair Jerome Powell, in which he discounted the probability of a rate hike and predicted that inflation would remain low for the duration of the year.

The Australian dollar failed to account for the further increases in copper prices, whereas iron ore prices remained stable. On the domestic front, labour market data yielded inconclusive results, as the unemployment rate marginally rose to 4.1% in April despite an unexpectedly robust increase of 38.5K in employment.

About monetary policy, the Reserve Bank of Australia (RBA) maintained a neutral position and signalled flexibility by keeping its interest rate unchanged at 4.35% at its meeting on May 7. As a result of service price inflation, the RBA's economic forecasts indicate elevated inflation through the second quarter of 2025, before it returns to the 2%–3% target range by late 2025 and reaches its midpoint in 2026.

It is expected that both the RBA and the Federal Reserve will execute easing measures later than a number of their G10 counterparts.

Considering the possibility of RBA easing later in the year and the Fed's determination to maintain a restrictive monetary policy, sustained upward movements in the AUD/USD are likely to encounter resistance.

AUD/USD

 

Technically, AUD/USD is trading within a bullish wave, where recent price trades above the 0.6644 crucial line. A successful consolidation above this line could be a potential long signal, targeting the 0.6850 line.

USD/JPY

The value of the Japanese Yen (JPY) remained unchanged for the week, with Friday marking the second consecutive day of declines against the US Dollar (USD). In the latter half of the week, the yen encountered difficulties against the dollar, almost negating its progress on Wednesday in response to the US Consumer Price Index (CPI) report that suggested a reduction in inflationary pressures. On Friday in parliament, Bank of Japan (BoJ) President Kazuo Ueda spoke about monetary policy and recent market events. However, his remarks failed to generate substantial new insights and thus failed to exert a substantial influence on the market.

In the interim, the DXY US Dollar Index, which quantifies the USD about a basket of six prominent currencies, strives to rebound from the significant downturn it underwent after the disclosure of the April CPI data. Nevertheless, there are a few remaining factors that can bolster the Greenback. Even though the interest rate differential may continue to support the USD, economic data no longer outperforms expectations, and inflation maintains its disinflationary trajectory.

USD/JPY

In the daily USD/JPY chart, the bullish pressure is still valid, as the recent price showed no selling pressure below the 20-day EMA line. Moreover, the recent bullish fakey candlestick formation from the crucial dynamic line suggests an upward continuation, targeting the 160.00 level.

XAU/USD

XAU/USD reached the $2,400s last week, bolstered by optimistic data from China that enhanced the outlook for the largest gold market in the world.

In contrast, Thursday's publication of various secondary data in the United States had no discernible impact on gold prices. Officials of the Federal Reserve (Fed) reaffirmed that the rate of inflation decline is insufficient to warrant the contemplation of interest rate reductions.

Gold had been rising earlier in the week following the release of feeble US retail sales and cooler US inflation data on Wednesday, which suggested that the Federal Reserve may be closer to reducing interest rates than previously anticipated. The anticipation of reduced interest rates enhances the appeal of gold that does not generate returns for investors.

Gold prices rose further on Friday after the National Bureau of Statistics of China reported that Chinese Industrial Production increased by 6.7% year-over-year in April, exceeding economists' forecast of 5.5% and being substantially higher than March's reading of 4.5%.

Furthermore, the Chinese government is implementing comprehensive measures to tackle the housing crisis. One such measure is a strategy whereby unsold homes will be purchased by state-owned enterprises (SOEs) and local governments. This initiative aims to alleviate inventory levels and assist the sector currently facing significant challenges. Additionally, the minimum deposit requirement for first-time homebuyers has been reduced from 25% to 15%, and the mortgage rate barrier for first and second-time homebuyers has been eliminated by the People's Bank of China (PBoC).

XAU/USD

In the daily XAU/USD price, a prolonged buying pressure is visible, where the recent price formed a bottom at the 2292.43 level before reaching near the existing all-time high. A successfu bullish breakout above the 2431.37 level might extent the upward pressure above the 2480.00 level soon.

BTC/USD

Bitcoin (BTC) maintains its upward trend as the market approaches the weekend. The foremost cryptocurrency is closing the week on a positive note, following the release of April CPI data on Wednesday and news of growing retail and institutional interest in BTC via exchange-traded funds (ETFs).

Seven days ago, Bitcoin was trading with a bullish bias, accumulating as much as 10%. It has increased by 2.2% in the last twenty-four hours alone, which is an impressive increase for the dominant cryptocurrency. The global cryptocurrency market capitalization has surged by 2.8% to $2.43 trillion, with altcoins following suit.

As a consequence of this upswing, positions worth a total of $120 million have been liquidated on the market. Among these positions, short positions have lost $83 million, while long positions have lost nearly $40 million.

In the interim, options worth Bitcoin and Ethereum worth approximately $2.1 billion are scheduled to expire today. More precisely, 18,000 BTC options with a put-call ratio of 0.63 will expire. $63,000 represents the maximum pain threshold, which has a fictitious value of $1.2 billion.

BTC/USD

In the BTC/USD daily chart, the recent price showed a sell-side liquidity sweep and rebounded above the 65876.37 line. As the current price hovers above this level, we may expect th eongoing buying pressure to extend.

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