Last week, the Fed was less hawkish than expected, the non farm employment report was disappointing, US Treasury yields fell and the stock market plunged, while the dollar was the winner of the whole foreign exchange market for third weeks. What is going on? Why is the market heading for a "wrong" direction?
Well, things are not as bad as the headlines show. The Fed may not be so tough, but it is still on a tight track. It's just that policymakers have introduced the concept of symmetry into inflation, which has plagued the dollar. In April, the jobs created by the US economy may be less than expected, but the unemployment rate is still at a historic low. Wage growth is disappointing, but at least they are growing steadily within a year.
FXStreet chief analyst Valeria Bednarik wrote on Friday (May 4th) that the dollar's rebound is largely attributed to the relief of geopolitical tensions, but the trend is closely related to the euro when it comes to the euro (1.1972, 0.0015, 0.13%) / US dollars. The final value of Markit PMI shows that although the economy is still expanding, economic growth is slowing down at the beginning of this year. More importantly, according to preliminary estimates, inflation figures released this week were disappointing, with inflation unexpectedly falling to 1.2% in April, with a core inflation rate of 0.7%, the lowest level since more than one year. This means that the European Central Bank will remain vigilant against monetary policy, while the European Central Bank's hopes of ending quantitative easing before September have weakened.
As long as geopolitical concerns remain low, the imbalance between central banks will become a related factor again.
Bad British data and the tensions of the prime minister, Teresa's cabinet, have helped the dollar rebound, and the other economies have been similar, and the weakness of the data has led to the pressure of different currencies.
In the coming week, the relevant macroeconomic data will be more light. US inflation data released next Thursday will be the most relevant news, with a 0.3% increase in the monthly rate and an increase of 0.1% in the previous value. The core annual inflation rate is estimated to be 1.9% and the previous value is 2.1%.
Under the current node, we can not deny that the appreciation of the dollar seems to be a bit overstretched, and that the tightening of monetary policy is too high. But the dollar is likely to continue to rally rather than reverse, and the callback will be seen as a buying opportunity.
Euro / dollar Technical Prospects
The euro / US dollar weekly chart showed that strong kinetic energy began to accelerate last week, further falling below 200, with technical indicators falling sharply to negative areas, as the currency fell below the new low of 1.1910 in 2018.
The daily chart shows a strong tendency to look at the sky. As the currency continues to fall, it is currently running at about 100 points below the 200 day average, for the first time for the first year, and the 20 day average is significantly lower than the 100 day average, both far higher than the current level. The technical indicators in the above charts have resumed downturns at oversold levels, without showing signs of downward exhaustion. The breakthrough of the 1.2100 level has always been the key to the current bearish trend. Although the upward adjustment is not impossible, it is expected to further decline. If we fall below the lows mentioned above, the next relevant support will be in the 1.1840 area. Since 2017, the exchange rate has been recorded for many days. In the long run, cutting the price of the region will mean that the next major support will be 1.1660.
1.2000 psychological threshold is the first resistance level this week, with intermediate resistance at 1.2060 and breakthrough award up to 1.2100. The latter is very important. If tested, selling interest may try to defend this level. At present, 1.2160 is the turning point, because the exchange rate needs to be absorbed above this level to turn to bullish.