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EUR/USD Monthly Technical Analysis for May 2016

By:
James Hyerczyk
Updated: May 2, 2016, 03:29 UTC

The EUR/USD finished higher in April, boosted by a weaker dollar. A combination of surging commodity prices, weaker economic data and increased

EUR/USD Monthly Technical Analysis for May 2016

The EUR/USD finished higher in April, boosted by a weaker dollar. A combination of surging commodity prices, weaker economic data and increased speculation the U.S. Federal Reserve may pass on raising rates at all during 2016. The EUR/USD finished the month at 1.1445, up 0.0067 or +0.59%.

In late April, the Federal Reserve left its benchmark interest rate unchanged after a two-day meeting in Washington, and official offered little guidance for when they might be ready to raise it again.

The central bank provided no assessment of risks to its economic outlook –the third time it has omitted what was once a standard analysis. In a carefully worded statement released after its meeting, the Fed said only that it is continuing to “closely monitor inflation indicators and global economic and financial developments.” That represents an upgrade from March, when the central bank singled out international turmoil as a threat.

The Fed also gave a mixed view of the recovery in recent weeks. It noted that the job market has improved, along with household incomes and consumer confidence. But it acknowledge that economic growth has slowed, and consumer spending has moderated. The Fed pointed to strength in the housing sector but softness in business investment and exports.

The news from the Fed helped trigger a rally by the EUR/USD but gains were limited by weak Euro Zone data in late April.

Flash Euro Zone Q1 GDP estimates published by Eurostat showed that Q1 GDP growth came in at 0.6% q/q, beating consensus forecasts for a rise of 0.4%. On an annualized basis, Euro area GDP was at +1.6% compared with Q1 2015.

Eurostat also released its flash estimate for Euro Zone CPI inflation in April which showed inflation back in negative territory. April headline dipped by -0.2% y/y in March. Core CPI, which excludes food, energy, alcohol, and tobacco costs increased by a seasonally adjusted 0.8% in April, below forecasts for 0.9% and down from 1.0% a month earlier.

Monthly EUR/USD

Technically, the main trend is down according to the monthly swing chart. The trend will turn up on a trade through the 1.1712 swing top.

The main range is 1.3993 to 1.0462. Its retracement zone is 1.2228 to 1.2644. This is the longer-term upside objective.

The short-term range is 1.1712 to 1.0539. Its 50% level or pivot comes in at 1.1125. This level is controlling the short-term direction of the market. The close over this level will give the EUR/USD an upside bias into May.

Based on April’s close at 1.1445, the direction of the market in May is likely to be determined by trader reaction to a downtrending angle at 1.1522 and a downtrending at 1.1352.

A sustained move over 1.1522 will indicate the presence of buyers. This could create enough upside momentum to challenge the main top at 1.1712. The trend will turn up on a trade through 1.1712 with the next major target a downtrending angle at 1.2073.

A sustained move under 1.1352 will signal the presence of sellers. Taking out the steep uptrending angle at 1.1339, however, will indicate the selling is getting stronger with the next target the short-term pivot at 1.1125. This is followed by a short-term uptrending angle at 1.0939.

Look for an upside bias on a sustained move over 1.1522 and a downside bias on a sustained move under 1.1352. There are no central bank meetings in May so the direction of the market is likely to be determined by trader reaction to Euro Zone and U.S. economic data.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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