Since the start of this week’s trading, the price of EUR/USD has been subjected to strong selling operations. As a result, it pushed towards the support level of 1.0122 before settling around the level of 1.0166 at the time of writing the analysis. The markets were strong with the announcement of the growth rate of the euro zone economy, then the announcement of the US retail numbers. The most important factor for the current market strength is the content of the minutes of the last meeting of the US Federal Reserve.

Analysts say that the recent developments in the energy markets in the Eurozone maintain the case for further depreciation of the Euro. Accordingly, the single currency in the Eurozone extended below the recent highs against the dollar and the British pound due to energy market developments which showed the European standard energy prices rising above €500 for the first time.

The developments threaten to put more pressure on businesses in the region in the coming months.

German energy for next year rose 5.2% to 502 euros/megawatt-hour on the European Energy Exchange on Tuesday. This represents a 500% increase in the last year. Commenting on this, Ole S Hansen, commodities analyst at Saxo Bank, says the EU’s gas and energy situation continues to deteriorate with the euro suffering as a result. European gas prices continued to rise as European countries continued to put pressure on demand in order to fill storage tanks before winter, amid continued pressure on supplies from Russia.

The European Gas Index – the TTF – rose 6.5% to its highest intraday price since early March.

Costs will rise at gas power plants in the eurozone, but electricity prices are under greater pressure due to lower production from nuclear power plants in France amid low river water levels and maintenance issues. Energy imports from Scandinavia have also been threatened by low levels of hydroelectric dams. An anticipation of suboptimal economic output is likely to further deteriorate the eurozone’s current account position, according to economists. The current account, the eurozone’s bank balance with the rest of the world, fell into a deficit in 2022 amid rising import costs and falling exports.

Euro forecast against the dollar:

There is no change in my technical view of the performance of the EUR/USD currency pair.

• The reaction of economic data and important events will have a strong impact on the currency pair for the remainder of this week’s trading.
• We still expect EUR/USD gains to remain a selling target as divergence in economic performance and the future of monetary policy tightening remain ultimately in favor of a stronger US dollar.
• According to the current performance, breaking the support 1.0120 will support expectations of moving towards the parity price and below it. On the other hand, according to the performance on the daily chart below, the movement of the bulls towards the resistance levels at 1.0320 and 1.0400 will be important to change the general trend to the upside.

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Since the start of this week’s trading, the price of the EUR/USD currency pair has been in a cautious wait until an update to the European Central Bank’s policy is announced. In addition we are also waiting for the US inflation numbers that will be announced on Friday. These events will chart the course of the currency pair’s movements in the coming days. 

Ahead of these events, the price of the euro against the dollar EUR/USD is settling around the 1.0740 level. The markets are looking forward to the approaching date of the last interest rate hike from the European Central Bank. Bank of America warns that the European Central Bank will raise its key deposit rate well above 0% before the year ends, but this risks increasing retail risks in the eurozone.

In a new research note, Bank of America says it now expects a cumulative 150 basis points of a rate hike this year, 50 basis points more than their previous assumptions. They see big moves of 50 basis points in July and September, which is more optimistic than the market consensus which is currently anticipating a more cautious 25 basis point move in July.

Commenting on this, Ruben Segura Caiwela, Europe economist at Bank of America Europe in Madrid, says: “Our call was already more hawkish than the consensus, it is even more powerful now.” “We cannot see the ECB avoid moving 50 basis points by September at the latest.” Such a surprise could boost the euro’s exchange rates initially, but “we remain concerned that this is too fast”, and in fact, the team of economists at Bank of America describes themselves as “conflicting a hawkish call for the European Central Bank” came in a recent note comes days before the European Central Bank’s June policy update, scheduled for Thursday.

The policy update should see the ECB confirm ending its quantitative easing program with the first rate hike confirmed in July. But a rush to tackle inflation could mean the risks of a eurozone fragmentation rise rapidly, “with Italy in the spotlight”.

“To be absolutely clear, we still don’t understand the ECB’s impulse,” the analyst added. We consider ourselves total bears, because we don’t really understand how the economy can go through a very large energy price shock unscathed in the first place, never mind how the economy is supposed to handle neutral rates when it is so far out of equilibrium. Hence, we expect the economy to stop the central bank after all these hikes this year.”

However, the logic of various members of the European Central Bank’s Governing Council has recently been adopted by Bank of America, including President Christine Lagarde. The ECB has made it clear that it wants to be seen as acting against inflation and to be proactive against the risks of second round effects. Eurozone inflation was 8.1% in May 2022, up from 7.4% in April 2022.

Bank of America is concerned that raising interest rates quickly would put undue upward pressure on the so-called peripheral eurozone countries such as Greece and Italy. They are already paying more than countries like Germany and France on their sovereign debt, and higher interest rates from the European Central Bank will inevitably increase their financing costs.

The danger is that the rising costs of financing for these countries become disorganized and trigger a new crisis.

Moreover, the analyst says that markets are not thinking enough about the prospects of a recession in the eurozone, and “we have the impression that recession risks are more easily recognized in the US than in the eurozone.”

What is the solution to the headache facing the eurozone economy?

More financial support is the solution suggested by Segura Caiwela. “Headwinds are coming from all sides, and fiscal policy, at the moment, is doing very little to offset.” Accordingly, Bank of America suggests a more cautious approach to fiscal policy tools could prevail, in anticipation of higher financing costs on the back of monetary tightening. Meanwhile, a shift in the economic landscape will cause the European Central Bank to rein in its ambition to raise interest rates in 2023.

According to the technical analysis of the pair: We expect unstable movements for the EUR/USD currency pair today, pending the announcement of the European Central Bank’s policy update. We are especially focusing on the tone of his statement and the statements of ECB Governor Lagarde. Any indications of a strong policy tightening path will support more gains for the euro against the dollar, and the closest to them will be 1.0785 and 1.0880, and the last level is important to expect the psychological resistance 1.1000, respectively.

In the event of caution to tighten the bank’s policy, it will give the US dollar the opportunity to launch, and thus breaking the 1.0630 support will push the bears to move strongly downward, as is the case with the general trend of the currency pair.

The price of the EUR/USD currency pair is still moving amid bullish momentum, which was able to move towards the resistance level 1.0786, recovering from its lowest level in five years. The euro’s gains came primarily due to a hawkish ECB policy escalation and a favorable international tailwind but will likely require continued support for both this week if overcoming technical resistance is immediately loomed in the market.

In general, the single European currency, the euro, rose further last week, recording its first set of consecutive weekly gains since the early days of the second quarter of last year. This is after China took steps to ease restrictions related to the Corona virus in Shanghai, and with policy makers in the European Central Bank signaling to a more hard-line policy stance. Allocations have been set for reopening Shanghai to advance further over the weekend while restrictions on activity in the Chinese capital, Beijing, have also been eased, which is important for the euro against the dollar given the extent of its losses since the last “lockdown” early in April.

The EUR/USD price fell from around 1.10 to 1.0349 between the April opening and mid-May and an important part of this decline was driven by developments in China and price action in the RMB exchange rates.

Anything supporting China’s economic recovery or normalization of the country’s foreign trade is noteworthy for the eurozone given that 10% of the bloc’s exports went to the world’s second-largest economy in 2021, which was also the source of 21% of eurozone imports. However, the general direction of the dollar and the monetary policy of the European Central Bank are also major influences, and both are likely to respond on Tuesday when Eurostat releases its estimate of eurozone inflation in May, which the market expects to rise from 7.5% to a new record high of 7.7% .

Some analysts doubt that the European Central Bank will actually raise interest rates in the eurozone with a larger-than-usual 0.5% increase in July, which will end the era of negative interest rates in Europe, but they note the risks of speculation in the markets in this direction over the coming weeks. This comes after several ECB board members, including ECB Governor Christine Lagarde and chief economist Philip Lane, expressed their support for higher borrowing costs that could end the era of negative interest rates in Europe any time before the end of the year.

According to the technical analysis of the pair: EUR/USD formed lower highs associated with a descending trend line that has been stable since mid-2021. It seems that the price has come for another test of this resistance, which lines up with the Fibonacci retracement levels on the daily time frame. As the 61.8% Fibonacci level is around the 1.0870 level and the closest to the trend line resistance. The price is already testing the 50% level around the 1.0770 level, which might also be enough to keep gains in check. If any of these levels hold, the euro against the dollar may resume falling to the swing low at 1.0340 or lower.

In the long term the 100 SMA remains below the 200 SMA to confirm that the general trend is still bearish and that selling is more likely to resume than reverse. The 100 SMA lines up with the trend line adding to its strength as resistance. The stochastic is already indicating overbought or exhaustion levels among buyers, so a turn lower means sellers are taking over. The RSI has a bit more room to go up, so buying pressure can continue and the correction may continue until overbought conditions materialize.

Since last Friday’s trading session, the price of the USD/JPY currency pair has been moving in narrow ranges with a bearish slope between the support level 127.14 and the level of 128.30.

It is settling around the level of 127.85 at the time of writing the analysis, waiting for anything new. Despite the recent performance, the US dollar is still the strongest with expectations of raising US interest rates strongly throughout 2022 to contain the largest inflation rate in the country in 40 years.

In this regard, US Federal Reserve policymakers, including Chairman Jerome Powell, repeatedly indicated in May that the bank was likely to raise the US federal funds rate by another 50 basis points at each of its next meetings, but it did not.

US inflation results will be useful in determining whether the Fed ultimately needs to raise interest rates more than is generally seen as likely, which is a big part of why the April core PCE price index reading on Friday is so important to the dollar.

The core PCE price index is the Fed’s preferred measure of price pressures, and therefore will do little to help the dollar if it shows inflation abating in both months.

Amid a torrent of statements by US Federal Reserve policy officials. Atlanta Fed President Rafael Bostik said policy makers may pause interest rate increases in September after raising half a point at each of their upcoming meetings. “I have a basic view where I think a stop in September might make sense,” Bostick told reporters yesterday after a speech to Rotary Atlanta. “As we get through the summer and think about our place in terms of politics, I think a lot of it will depend on the dynamics on the ground that we’re starting to see. My motto is observation and adaptation.”

Bostick reiterated that he supports Governor Jerome Powell’s plan to raise US interest rates by half a point at the FOMC meetings in June and July, adding the warning that a surprise rally in rates may warrant more aggressive action. Inflation was near its highest level in four decades and at rates more than three times the central bank’s 2% target.

“I’m at 50 basis points as long as the economy progresses as I think it will go,” Bostick added. And “if inflation starts moving in a different direction than it is now, I would be open to moving more aggressively. I want to make it clear that nothing is off the table. As the months go by, we will see how it goes.”

Bostick also said he expects inflation to be in the “high 3%” range at the end of the year, with a lot of uncertainty around the outlook. Economic growth is expected to be higher than the general trend for this year. Bostick added that recent moves in financial markets, including a sharp drop in stocks last week, have been consistent with the Fed’s goal of fiscal tightening. There have been few signs on the real side of the economy that the economy is slowing since the Fed began rate hikes in March.

According to the technical analysis of the pair: On the daily chart below, it seems clear that the bears are currently controlling the path of the USD/JPY currency pair. Their control of the trend will increase if the currency pair moves towards the support levels 126.80 and 125.00, respectively. From the last level, it is preferable to think about buying the currency pair, as expectations of a US interest rate hike are still strong and will eventually support the US dollar. On the other hand, the bulls’ control over the trend will be strengthened if the currency pair moves towards the 130.00 psychological resistance level again.

The USD/JPY currency pair will be affected today by the extent to which investors take risks or not, as well as the reaction from the expected statements of US Central Bank Governor Jerome Powell and the announcement of the results of US economic data, the manufacturing PMI, services, and US new home sales.

This week, it will be unusual in the reaction to the price of the GBP/USD currency pair, as the currency pair will await the announcement of interest decisions from both the Bank of England and the US Federal Reserve.

The sharper tone towards more rate hikes will benefit one of the currencies. Amid the recent strength of the US dollar with expectations of raising US interest rates, the sterling dollar currency pair fell towards the 1.2411 support level, its lowest since July 2020, and it may start trading this important week, stable around the 1.2580 level.

At the end of last week’s trading, the currency pair tried to rise as the British pound is looking to recoup some of this week’s losses of 2.5 percent against the rise of the US dollar. All in all, the US dollar had a particularly strong month and yielded good returns for traders who were betting on one of the strongest trends in the global financial markets.

There are no headlines or key terms to explain the dollar’s decline ahead of the weekend, but purely technically it was bound to happen at some point: the GBP/USD and other dollar pairs are in oversold territory now. A look at the daily chart of the GBP/USD pair shows that the Relative Strength Index (RSI) has dropped significantly below the oversold water mark at 30. This does not represent a trend reversal. The Relative Strength Index (RSI), an indicator that can give clues to the momentum of a financial market while also indicating when the market is oversold or overbought. Anything less than 30 is oversold, and the above shows that the GBP-Dollar did not reach such oversold conditions during 2022. When it was last oversold in March, there was a further rally, but it did not represent a turn in trend .

The last time sterling reached more oversold states was back in 2020 when markets were in complete panic regarding the spread of the Covid-19 virus. A correction in the RSI will be inevitable: this could mean a higher recovery or simply a pause in the downward movement and some of the following days of bearish movement.

This does not necessarily mark the end of a downtrend that has been in place for nearly a year now.

JP Morgan’s forex analysts this week lowered their forecast for the pound-dollar exchange rate, largely as an admission that the dollar’s continued rally should continue further. “The system of weak growth expectations and high inflation has persisted and continues to support the strength of the US dollar,” says Mira Chandan, FX strategist at JP Morgan.

As a result, the investment bank raised its dollar forecast by an average of 1.5% over its forecast horizon. JP Morgan’s outlook for a strong dollar is dependent on the exceptional economic performance of the United States relative to the rest of the world, and the associated responsive rise in interest rates at the US Federal Reserve. Accordingly, Chandan says, “The backdrop for global growth and inflation remains fragile and supports the strength of the dollar.”

Chandan notes that global growth forecasts have been lowered in the past six weeks and inflation expectations have increased. “We are making major revisions to the outlook for the major US dollar pairs this month,” the analyst adds. This includes: EUR/USD As forecasts for the third quarter of 2022 have been lowered to 1.05 from 1.11 and the 2023 quarter has been reduced to 1.10 from 1.13. The bank’s forecast for GBP/USD for the third quarter of 2022 was lowered to 1.27 from 1.33 and the first quarter of 2023 fell to 1.31 from 1.34 previously.

Accordingly, analysts say the downgrade to Euro and Pound forecasts partly reflects the growing evidence of stagflation in the Eurozone and UK economies.

According to the pair’s technical analysis: GBP/USD may finally be ready to reverse its slide, as the price finds support at the 1.2400 area. The correction may lead to a rise in the Fibonacci retracement levels or the previous triangle support around 1.3000. The 38.2% Fibonacci level at 1.2680, then the 50% level at 1.2764. The biggest retracement could be 61.8% Fibonacci near the minor psychological mark of 1.2850 or the bottom of the broken triangle near the dynamic reversal points of the moving averages.

The 100 SMA is below the 200 SMA to indicate that the general trend is still down, and the selling is more likely to resume than reverse. The gap between the indicators is slowly widening to reflect increased selling pressure. Stochastic is rising above from an oversold area to indicate that buyers are taking over while tired sellers are taking a breather. Likewise, the RSI is moving upwards, so the price can follow suit as upward pressure increases and be able to enjoy both Oscillators with plenty of room to go up before reversing overbought conditions.

Today, with the most important event for the euro pairs in the forex market, where the European Central Bank will announce its monetary policy decisions. Despite expectations that the bank will keep interest rates unchanged, the general trend for global central banks, as we watch daily to raise interest rates, investors and analysts are counting on the Central Bank to change and point to the imminent date of tightening his policy.

This explains the upward trend of the EUR/USD currency pair since yesterday, stable around the 1.0892 level, and the most popular currency pair in the currency market crashed to the support level 1.0809 this week.

It must be emphasized that the Russian war has increased pressure on the single European currency, in addition to the consequences of the pandemic, and the exclusion of an imminent date for tightening the European Central’s policy. Economic institutes advising the German government cut their forecasts for Europe’s largest economy – Germany – and warned that a complete halt to Russian natural gas imports would lead to a “severe recession”. The five think tanks said in joint forecasts that German growth this year will slow to 2.7% before rebounding to 3.1% in 2023. The numbers compare with previous forecasts for growth of 4.8% and 1.9%. Inflation will average 6.1% in 2022 – the most in 40 years.

Commenting on this, Stefan Kothes, Vice President of the Kiel Institute for the World Economy, said: “The shock waves from the war in Ukraine are weighing on economic activity on the supply and demand sides.” the prices.”

The report warned that an immediate disruption to Russia’s energy supply could jeopardize 220 billion euros ($238 billion) of economic output in 2022 and 2023. “It would then be important to support marketable production structures without halting structural change,” Kothes added, urging makers to Policies not to provide “poorly targeted transfers to mitigate higher energy prices.”

Germany’s industry-heavy economy is facing major hurdles after the war in Ukraine sent energy prices soaring while disrupting supply chains that were already reeling from pandemic-related crises. Inflation hit 7.6% in the first full month of the war – the highest level since records began after reunification in the early 1990s. Companies are seen as particularly vulnerable because of Germany’s dependence on Russian gas, which the government wants to reduce. Last week, the ruling coalition approved an aid package for struggling companies that includes loans, loan guarantees and capital injections, aimed at helping energy companies in particular.

German industry leaders, including Christian Sewing, chief executive of Deutsche Bank AG, have warned of dire economic consequences if Russian energy supplies are cut off.

According to the technical analysis of the pair: The recent rebound attempt of the EUR/USD did not get the currency pair out of its bearish track, as it is still closer to testing the 1.0800 psychological support, which confirms the bears’ control of the trend. The currency pair’s path may change if it returns to the 1.1200 resistance area, according to the performance on the daily chart. As mentioned before, any attempts by the euro to recover to the highest selling opportunities will remain as long as the Russian war persists and as long as the divergence in economic performance and the future of central bank policy is in favor of the dollar.

Regarding the economic calendar data today: The European Central Bank will announce the update of its monetary policy decisions, and attention will be given to the event in the tone of its policy statement and the statements of ECB Governor Lagarde. On the US dollar front, we will be on a date with a package of the latest important economic data for this week, as the US retail sales numbers will be announced, along with the number of weekly jobless claims and US consumer confidence from Michigan.