EUR/USD Forecast May 17-21 – Euro Steady, Fed Insists No Change In Policy

The euro rally petered out, as EUR/USD was down slightly last week. There are three releases in the upcoming week, including eurozone inflation. Here is an outlook at the highlights and an updated technical analysis for EUR/USD.

The eurozone Sentix Investor Confidence rose to 21.0 in May, up from 13.1 points. Investors are showing increased optimism as the eurozone vaccine rollout gathers steam. The ZEW Economic Sentiment index for May also showed stronger optimism, rising from 66.3 to 84.0. Germany’s ZEW read also accelerated, from 70.7 to 84.4 points. German inflation came in at 0.7%, confirming the initial estimate.

In the US, April inflation surged and was higher than expected. Headline CPI (YoY) climbed 4.2%, up from 2.6% beforehand. PPI also climbed sharply, with a gain of 6.2%, up from 4.2% beforehand. Despite the surge in inflation, Fed members reiterated that there are no plans to taper the massive stimulus program.

Retail Sales for March (MoM) disappointed. The headline reading slowed to 0.0%, down from 9.8% in the previous release and shy of the estimate of 1.0%. Core Retail Sales contracted by 0.8%, down sharply from 8.4% and shy of the forecast of +0.5%.

EUR/USD daily chart with support and resistance lines on it. Click to enlarge:

  1. GDP: Tuesday, 9:00. The eurozone economy contracted by 0.6% in Q4, its third decline in four quarters. Another decline of 0.6% is expected in the first quarter.
  2. Inflation Report: Wednesday, 9:00. We are seeing increasing inflationary pressures in the eurozone, which could force the ECB to reevaluate its ultra-accommodative monetary policy. Eurozone headline CPI has been rising and is expected to reach 1.6%, up from 1.3%. However, core CPI is forecast to tick lower to 0.8%, down from 0.9%.
  3. PMIs: Friday, 7:15 in France, 7:30 in Germany, and 8:00 for the whole eurozone. Manufacturing continues to show strong growth. Germany is leading the way, and the estimate for the April Manufacturing PMI stands at 66.0. The estimate for the eurozone stands at 62.0 and France's estimate is at 58.6 points. The services sector has been lagging behind due to the ongoing lockdowns in Western Europe, but it is showing slight expansion. The estimate is 52.0 for Germany, 52.5 for the eurozone, and 53.0 for France. The 50-level separates contraction from expansion.
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