Some amazing things take place in the market from time to time, and Forex is facing them again at the end of May. The EURUSD‘s sharp fall and subsequent surge suggest the pair was manipulated. Let’s discuss that and make a trading plan.
Weekly fundamental forecast for dollar
When everyone is selling, there’s a perfect opportunity to buy. April’s forecast of 2.9% for the personal consumption expenditures index looked appalling, but the EURUSD ‘s collapse to 1.213 made me think someone knew the index would rise further. That’s exactly what happened: the PCE and base inflation grew 3.6% and 3.1%. However, the leading currency pair soared instead of declining. Could it be manipulation? Yes, it could. Still, there are so many people who wish to buy euros that any collapse of quotes is instantly bought out.
Asset managers’ net euro buying grew to its highest since 2006 for many reasons: reversal risks indicate the EURUSD‘s bullish prospects, Bloomberg experts expect the European GDP will grow faster in 2022 that its US counterpart, while Deutsche Bank and Citigroup predict the euro/dollar will hit 1.25 in the nearest months. A short squeeze risk is rapidly growing, so the bears like Rabobank forecast the EURUSD will have fallen to 1.18 by the end of the year as Jerome Powell will announce QE tapering at Jackson Hole.
US and Eurozone growth forecasts for 2021-2022
Source: Bloomberg.
Financial markets estimate a chance of a federal funds rate hike by 25 basis points next year at 72%. Before raising the rate, the Fed must scale QE back. There isn’t much time left, so the FOMC officials’ statements about phasing out monetary help look like a preventive measure. The Central Bank is preparing markets for QE taper not to provoke a panic like in 2013.
At the same time, Deutsche Bank doesn’t think the US QE tapering is a hawkish signal. Neither do I. When quantitative easing ends, the Fed will continue buying bonds and preventing their yields from growing. Ten-year bond yields will have risen to 1.9% by the end of 2021 and to 2.17% by the end of 2022, Bloomberg estimates. Quite a moderate rally and bad news for the US dollar.
The question is, how will bond yields behave in the near time? How will they react to US labor stats? Economists asked by Bloomberg believe non-farm payrolls will grow by 650 thousand in May. Also, June’s and July’s statistics will show whether April’s disappointing data was a temporary notion. If so, the Fed will come closer to ending QE.
Weekly trading plan for EURUSD
The EURUSD roller coaster amid expectations of PCE boost with subsequent fact-based buying proved the strategies set out in my previous articles were successful. They can be applied to short-term selling targeted at 1.213-1.215 and medium-term buying on pullbacks from support at 1.215. What’s next? The pair’s return to above 1.222 may give rise to a new bullish attack, but it may well be that the pair will consolidate ahead of the publication of US labor stats.
Price chart of EURUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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