Following the results of the next trading week, the exchange rate of the Euro/Dollar currency pair fell to the support level of 1.2100.
After several relatively quiet sessions, on Friday, the quotes fell by almost 0.25% on the back of falling European bond yields after the words of ECB Governing Council member Klaas Knuth that the central bank can control inflation. Robert Holzmann, a member of the board of the Central Bank, also confirmed that he does not see excessive price pressure. A day earlier, the European regulator at a scheduled meeting left monetary policy unchanged, as expected. ECB Chief Lagarde presented an optimistic economic outlook, given the progress of the vaccination campaign and significant additional fiscal policy measures. Economic growth and inflation forecasts for 2021 and 2022 have been revised up markedly based on increased consumer spending, strong global demand, and stimulative fiscal and monetary policies.
Data last week showed that U.S. consumer prices rose 5% year-on-year, the sharpest increase in more than a decade. Core inflation rose 0.7% over the month. A significant contribution in the form of short-term increases in the prices of airline tickets and used cars helped convince traders that there will be no rise in interest rates in the near future. The short-term spike in inflation is mostly in line with the Fed's scenario. The yield on the key 10-year US Treasury bonds actually rose to a three-month high following the consumer price index, as sellers, or holders of short positions, stopped betting on the growth of the indicator.
The main event of the upcoming week will be the meeting of the US Open Market Committee. The Fed is certain to maintain its ultra-soft monetary policy with the June 16 decision, resulting in the dollar being slightly weaker against some currencies. It is expected that the regulator may hint that the start of discussions on reducing quantitative easing may begin earlier than expected, but there is no specific time frame. In this situation, the dollar should fall in value against currencies that benefit from high commodity prices or higher yields, which are currently only found in emerging markets.
According to analysts at Commerzbank, the euro will continue to trade in a sideways trend against the dollar in the near term due to the lack of clear signals from the Fed on the timing of the reduction of incentives. The market will hope that the US regulator will clarify its position on the recent acceleration of inflation. Commerzbank believes it is doubtful that the Fed will change its mind, since recent labor market data have been quite moderate.
Euro/Dollar Forex signals and levels
The forecast assumes a further decline in the Euro/Dollar exchange rate to the levels of 1.2075, 1.2050, 1.2030, 1.2000 and 1.1980.