Euro to US Dollar Rate: Forecast for Next Five Days

EUR/USD is still in a long-term downtrend regardless of its short-term recovery, and whilst we have seen a recovery over recent weeks the exchange rate may fall back again in May.

On the monthly chart below it is clear that the down-trend remains dominant.

The chart also shows a set-up which increases the probabilities the next month will be negative. 

The last two months were positive (green) and when this happens in a downtrend it is a signal that the next month (May) is 66% likely to be a down-month, by which we mean it will close lower than it opened.

This gives a bearish tenor to the new month and the week ahead.

Zooming into the weekly chart now we note the pair gapped higher at the start of last week and is trading at the exact same level as the 50-week moving average (MA).

Gaps almost always close unless they are breakaway gaps out of price patterns which this one is not.

There is high chance, therefore, that this gap may close in the week ahead, and a break below the weekly lows at 1.0819 would probably signal continuation to close the gap at 1.0779.

Moving averages can provide support and resistance to price which means they can provide obstacles to price growth in an uptrend. On the EUR/USD weekly chart the 50 MA appears to be resisting the exchange rates attempts to move higher following its upside gap.

The pair has reached the upside of a rising channel which may indicate weakness on the horizon as the channel is likely to contain the rate as it evolves, which suggests the move may be lower not higher.

The shape of the recent week is a neutral doji candlestick – the name for a Japanese candlestick which indicates indecision.

The market structure is showing two higher highs and lows, which is a signal the broader trend could be reversing – and is the primary bullish sign on the chart.

A break above the trendline in the 1.10s would be a significant game-changer, reinforcing the structural reversal and probably leading to a stronger price evolution higher.

Zooming down to the daily chart and the picture is further complicated by the location of the 200-day MA at the lows of last week’s ‘island-like’ cluster of activity.

The 200-day MA is a formidable support level and by providing underpinning support reduces the chances the pair will move lower and close the gap.

Despite the 200-day we are on balance bearish in the week ahead due to the formidable ballast of resistance above the exchange rate and the gap which will probably fill, however, our view is not a conviction call.

Data, Events to Watch for the Euro this Week

The final round of the French presidential election next Sunday will be a major influencer on the Euro which is likely to rise given the favourite by a large margin remains the moderate pro-European Emmanuelle Macron.

A Macron victory could well see further strength in the Euro as hedges against a Le Pen win are finally closed out.

Such insurance against a Le Pen win has however diminished significantly since the first round and we would expect any premium afforded to the Euro from this dynamic to be limited.

Apart from that, the main release for the region is Q1 GDP on Wednesday May 3 at 10.00 GMT.

Some individual country GDPs has already been released ahead of the regional figures. Spanish growth accelerated a basis point in Q1 to 0.8% whilst French disappointed slightly by rising only 0.3%, although according to Barclays the bigger picture and outlook for

France in Q2 is improving, with, “ongoing investment across sectors bolstering the recovery,” and “latest business surveys positively orientated across the board.”

German GDP has not been released but the strong German IFO sentiment survey makes Barclays confident general Eurozone growth will be robust at 0.4% in Q1.

Data for the Dollar

The Dollar’s main events in the coming week are the FOMC (Federal Open Market Committee) meeting on Wednesday evening at 19.00 GMT and Non-Farm Payrolls at 13.30 on Friday.

Recent poor GDP data for Q1 and a low (98k) Payrolls result in March have brought into question the sustainability of US growth.

If the Federal Reserve appear less confident in their language this could weigh on the Dollar.

Expectations had been for the Fed to announce an increase in interest rates at the June meeting, however, the recent poor data has now brought that into doubt, at least according to some analysts.

“There is currently a misalignment between the performance of the US economy and the market's expectations for Fed tightening,” said Kathy Lien of BK Asset Management.

The risk is, therefore, for the FOMC to realign market expectations to a less hawkish outlook, which would result in a weakening of the Dollar.

Not all analysts are on the same page with this, however, as Barclays Capital are more optimistic, arguing the Q1 GDP miss was more due to “transitory” “seasonal” effects than real economic decline.

“The bias is for action, not inaction, which means we believe the hurdle for weak data to alter the Fed’s plans has been raised,” said Barcap’s Antonio Garcia Pascual, who also highlights the possibility of a change in the Fed’s language over reinvestment of its QE proceeds.

As far as Payrolls go, the market and most analysts are optimistic April will show a better result than March.

Consensus estimates are for 193k; TD Securities expect 165k and Barcap forecast 225k.

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