Euro/Dollar: last week results and forecast for May 24-30, 2021
Last week, the Euro/Dollar exchange rate strengthened to the resistance level of 1.2175.
The US currency declined moderately against the main assets. The main triggers of the movement were the minutes of the Fed following the meeting of two weeks ago and inflation expectations. Investors now believe that there is still a long way to go before any action by the regulator, and the way is open for a resumption of the downward trend in April, as the US trade and budget deficits increase.
From the minutes of the FOMC meeting, it follows that some Fed officials are thinking about starting to ease monetary policy, but so far they remain in the minority. Recent comments from voting FOMC members continue to align with Central Bank Governor Jerome Powell's view of maintaining the current adjustment policy despite the increasingly positive US economic outlook. The Fed will remain on hold for at least most of 2021, and discussion of a reduction will not begin until late 2021 or early 2022. An event worth keeping an eye on will be the August symposium in Jackson Hole, where the regulator may announce a reduction in the volume of the securities purchase program. The Fed will keep interest rates at the current level until at least 2023, according to the published minutes.
The global shortage of the means of production, from chips to raw materials, provokes a rapid increase in industrial inflation in Germany. In April, producer prices in the country increased by 0.8% and by 5.2% in annual terms. Interestingly, the previous period of equally strong growth in Germany in 2011 ended with an increase in ECB rates, after which the indicators went into decline. Today, as then, inflation was driven by rising prices for energy and raw materials in general. This time, it looks like things will be different. The European regulator intends to continue its stimulus until the region's economy fully recovers from the effects of the coronavirus pandemic. For now, Eurozone GDP growth remains below pre-crisis levels. Last week, the International Monetary Fund said that Germany should not cut its fiscal stimulus too quickly. The IMF predicts that Europe's largest economy will return to pre-crisis levels early next year.
On Friday, Euro/Dollar fell below the 1.2200 level after ECB President Christine Lagarde downplayed the likelihood of a significant deviation from the current parameters of monetary stimulus at a meeting of policy makers next month. Lagarde once again noted that the regulator's commitment to the Euro zone currency is to maintain favorable financing conditions throughout the entire period of the pandemic. The increased vaccination activity has sparked speculation that the ECB may soon start discussing reducing support. The Central Bank increased its bond purchases this quarter to counter rising borrowing costs caused by a faster recovery in the U.S. economy. Lagarde also reiterated her view that high inflation in 2021 will be temporary, and the ECB is not seeing the main drivers of sustained growth.
Signals for trading EUR/USD currency pair
The forecast for the coming week suggests a decline in the Euro/Dollar exchange rate to the levels of 1.2150, 1.2130, 1.2100, 1.2070 and 1.2050.