The EUR/USD pair could not leave the area of the level of 1.21 last Friday. The buyers of this instrument tested the price level of 1.22 almost every day, but they returned back each time, meeting the sellers' resistance. The contradictory fundamental background contributed to this price trend: The ECB's and Fed's uncertain monetary outlook hinders the bulls or bears to develop a stable up or down price movement.
On the one hand, the EUR/USD is in an upward trend, indicated by the higher time frames, but on the other hand, buyers cannot consolidate above the level of 1.2200 to resume their growth. This week, the confrontation between the parties will continue, although the economic calendar is not filled with important events. The main attention will be focused on the rhetoric of the Fed's representatives, while the macroeconomic reports will be of secondary importance.
Today, many trading platforms around the world are closed – in Europe, they celebrate Catholic Pentecost (The Day of the Holy Spirit), and in Canada, they celebrate Victoria Day. The Fed representatives may provoke some volatility. During the US session, Lyell Brainard and Raphael Bostic will voice their opinions. Earlier, they have already expressed their position on the resonant inflation release, stating that the inflationary growth is temporary. It can be assumed that they will mention this again today, putting some pressure on the US dollar.
On Tuesday, the German IFO Business Environment Indicator will be released during the European session. It has shown consistent growth since January, reaching 96.8 in April. Therefore, positive dynamics is also expected in May: experts believe that the indicator will rise to 99 points. It is worth noting that the latest ZEW reports also came out in the green zone, repeating the PMI trajectory. In particular, the German index of business sentiment jumped to 84 points – this is the best result in the last 20 years. This result reflects the optimism of German entrepreneurs about the prospects for the recovery of the European economy, amid the vaccination of the population against coronavirus, the stability of the economy in the first quarter, and decline in the COVID-19 cases in Germany. If the IFO report is also released in the "green zone", the euro will receive significant support.
During the US session on Tuesday, the US consumer confidence indicator will be published. Here, negative dynamics are expected. The indicator showed a consistent upward trend for four months, reaching 122 points. In May, a more modest result is predicted: the indicator should grow to the 119th mark. However, this release is likely to have a short-term impact on EUR/USD pair. But the rhetoric of the Fed representatives (Randal Quarles and Charles Evans will speak today) may provoke some volatility.
On Wednesday, no major releases or speeches from Central Bank representatives are expected, while on Thursday, all attention will be focused on the publication of data on the growth of the US economy in the first quarter of this year. The second estimate of this indicator will be published on May 27. It can be recalled that the initial release reflected the serious pace of the recovery process, although it did not meet the forecast level: the volume of US GDP rose by 6.4% in the three months of 2021, against a growth forecast of 6.8%. That is, on the one hand, the indicator came out in the "red zone", but on the other hand, it showed serious growth. GDP increased by 4.2% in the 4th quarter. In particular, consumer spending on durable goods surged – the indicator grew by 41% at once, while it was in the negative area (-1.1%) last month. The GDP price index also exceeded the forecast level almost twice – it rose to 4.1% with a growth forecast to reach 2.6%. The US dollar will receive significant support if the second estimate of the above components is revised up.
Also on Thursday, it is necessary to pay attention to the growth rate of initial applications for unemployment benefits. The indicator has been declining for three consecutive weeks (for example, if at the end of April the weekly increase in the number of applications was at the level of 590 thousand, then a week ago the increase was 444 thousand). This week, a downward trend is also expected – the indicator should reach 420 thousand.
On Friday, traders of the EUR/USD pair will react to the main index of personal consumption expenditures (Core PCE Price Index), which measures the core level of spending and indirectly affects the dynamics of American inflation. It is believed that this indicator is monitored by the members of the regulator "with a special predilection". According to forecasts, the index will show a strong result – it will rise to 0.6% (a multi-month high) in monthly terms, and to 3.1% (a multi-year high) in annual terms. This release may have a significant impact on the US dollar's position, especially after the resonant inflationary release, which reflected an increase in the consumer price index.
Technically, the pair on the daily chart is trading between the middle and upper lines of the Bollinger Bands indicator, which indicates the priority of the upward movement. In addition, the price is above all lines of the Ichimoku indicator, including the Kumo cloud. It can be recalled that the pair showed a downward impulse last Friday, reacting to C. Lagarde's "dovish" rhetoric. So today will show in which direction the scales are inclined. If the EUR/USD bears fail to move below the level of 1.2150 (Tenkan-sen line on D1) by the end of Monday, then traders can consider longs with the first medium-term target at 1.2200 and the main target at 1.2245 – this year's current high.
