EUR/USD Monthly Outlook – May 2018

The EURUSD had a tough month of April as the dollar spread its wings finally and managed to soar higher all through the markets during the past month. The dollar had been expected to emerge stronger over the last few months but that did not happen for quite sometime and it was only last month that the dollar began to show its true colors and moved higher all across the markets. This has pushed the euro on to a bearish phase and by the looks of it, this seems to be only the beginning of the trend.

EURUSD Bearish

The Fed had hiked the rates in March and since that time, the traders have been expecting the dollar to move higher and gain in strength. The Fed had only met the market expectations and since the traders have already priced in 3 rate hikes during the course of the year, there has not been much movement in the markets over this period. The market wanted to see something more but that did not happen. The month of April was worse as the NFP employment data came in weaker than expected and this would have led to the dollar weakening. But the dollar bulls managed to hold on.

Then came along the ECB and this set the cat among the pigeons as they raised doubts on how long the QE would be continuing at the current levels. The incoming data from the Eurozone towards the end of the last year had left to the belief that QE would be tapered quickly as the incoming data was pretty strong and we also saw that the ECB was pretty tempted to join the bullish bandwagon at that time. But over the next few months, we have been seeing the incoming data begin to slip in a slow and steady manner in the Eurozone. This has led to doubts on whether the economy would be able to sustain if the QE was tapered and finally ended and due to these factors, we have been seeing the ECB express caution in its last meeting. This has set the tone for the bearish euro.

Euro Likely to Get Weaker

Looking ahead to the coming month of May, we are likely to see the euro continue its weakness. The data from the US during the early part of the month is likely to set the tone for the rest of the month. Based on that, we believe that the dollar would continue to trade in a strong manner as we expect the NFP employment report to come in a strong manner. Of course, that would not be enough to push the Fed into an accelerated path of rate hikes but that would provide some more backing for the dollar bulls which should keep them pushing higher. Also, the euro has broken through a long held range and hence we believe that there would be enough follow through for that breakout in the coming month.

Technically, we have seen the prices break through the 1.21 region and it is likely that this region would now serve as the strong selling region. The pair had been trading above this region for quite some time and hence a break below this region is likely to signal a long period of bearishness in the euro. There is likely to be a bit of support for the pair at the 1.19 region and if and when the pair breaks through this region, we are likely to see the pair push towards the 1.16 region in due course of time. For this, the data from the US needs to be strong and that is why we said that the employment data at the beginning of the month is likely to set the tone for the pair for the rest of the month.