EUR/USD Monthly Forecast – May 2017

The EURUSD pair had a great month in April as the bulls took control of the pair during the later half of the month and pushed it higher and higher on a general risk on mode that was seen across the markets in the second half of the month. It was some tight consolidation trading during the first half of the month as for a couple of weeks, the pair was caught within a tight 100-150 pip range on either side of 1.06 and for a brief while, it looked as though the pair might mount a serious challenge to the strong support region at 1.05.

EURUSD Unable to Break Through

During this period, we had been mentioning in our forecasts that the pair wasnt doing much but ranging between the support in the 1.0550 region and the resistance at the 1.0700. There was some panic among the traders as there were periods of dollar dominance and it looked as though the pair might crack but nothing of that sort happened and except for a brief visit below 1.06 for a couple of times, there was no imminent threat of the pair moving anywhere soon.

This was the situation in the first half of the month as the market was also building up towards the French elections that were scheduled for the second half of the month. Though the hardliner Le Pen was shown to be behind on the opinion polls, the Trump election had shown the markets that they need to be careful and wary and that was also one of the reasons for the market to consolidate ahead of the election. Once the election got over and the results showed that the business and euro-friendly Macron won it and was also well poised to win the run off in May, the EURUSD pair began to rocket through 1.07 and then pushed through 1.08 and even went above 1.09 where it finally made a stop.

Towards the end of the month, the pair corrected a bit but the general bullish trend was well alive in the pair during the second half of the month due to the positive French election news.

Looking ahead to the coming month, we are likely to have some buzz around the run off in the French elections on May 7 but with the Macron victory already priced into the markets, we do not expect the results to have much of an impact. The EURUSD pair is clearly in a bullish grip but it needs to surmount the region between 1.09 and 1.0950 for it to make further progress towards 1.10. It also remains to be seen whether the ECB would prefer the euro to be strong and beyond 1.10 as we believe that ideally, the ECB would like to have the euro below 1.10.

This fundamental stance of the ECB ties up with the technical charts as well as we see a lot of resistance in the region between 1.0900 and 1.0950 in both the weekly and monthly charts. We have seen the EURUSD pair fail many times in this region since the beginning of the year and so far, we do not find a reason for it to be any different this time. Of course, the economic data from the Eurozone has been positive but with the ECB likely to prefer a weak euro and the technical charts also pointing to a strong selling in this region, we do not find anything that would be able to surmount this. Apart from the usual economic data in NFP and the FOMC and the ECB conference, there is not much to look forward to in the coming month.

We also expect the dollar to hold steady in the coming month as the markets begin to get used to the way of Trump and his team and the traders wait to see how much he can follow through on his promises of tax cut and healthcare reforms which we had announced in March/April. With this in mind, we do not expect the dollar to gain or lose much in the month of May and so we expect the EURUSD pair to experience some choppy trading in the coming month but stick to the large 400-500 pip range which most of the market participants seem to be comfortable with, for now, which continues to be between 1.0550 and 1.0900.