Forex Monthly Outlook – May 2017

GBPUSD Spurts Higher

GBPUSD pair had a very strong month during April as certain fundamental events ensured that the confidence in the pound skyrocketed during the course of the month and this was helpful for the bulls to push the pair higher. It started the month on the backfoot and as it has been doing since the beginning of the year, it continued to consolidate near its range lows between 1.22 and 1.25 and this continued for the first half of the month and this lulled the traders into a false sense of security as they expected this range to continue to hold for the rest of the month as well. All things were pointing to the same and even the ever improving data in the UK and the weakening of the dollar across the board was not enough to push the pair beyond the range highs but what followed in the second half was something that was not expected.

On April 18, a rumor began doing the rounds that the UK PM May would announce quick polls in June and within a couple of hours, the rumor became a reality. This was soon followed by a kneejerk reaction lower for the GBPUSD pair but once the real meaning of the polls began to sink in, the pair began to skyrocket. This was a smart move by May to get a stronger mandate when the opposition is down in the dumps. A stronger mandate would also help her to push through her agenda quicker and would greatly help her position when she sits for negotiations for the Brexit process. And by doing this after the invocation of Article 50, she has basically removed the question over Brexit, out of the equation. All in all, it was an extremely smart and strong move from May and the markets loved it. They showed their appreciation by pushing the GBPUSD pair through 1.26 and as high as 1.28 within 48 hours. The weakness of the dollar and the risk on mode following the French elections also helped to push the pair further higher and it closed the month comfortably higher than 1.29.

Technically, it is pretty much clear off any strong resistances and the path to 1.30 looks very free and clear. Having broken the topside of the range since the beginning of the year, technically, the GBPUSD pair is looking at 1.34 in the coming month of May. The only thing that could stop this move are indications from the US about a rate hike in June, which is a possibility. For this, the FOMC and NFP data and the speeches from Yellen would be viewed closely by the markets for any sign of the same. We expect 1.2650 to hold the bottom of the range on any move down while the target would be 1.34 in the medium term.

USDJPY On The Rampage As Risk On Begins

USDJPY had a volatile month of April as the early part of the month was dominated by fears and uncertainties around the world regarding the French elections and also by statements from Trump and his team on trade and also their threats against Syria and North Korea. All these kept the risks very high and this helped to keep the yen strong during the early part of the month. This pushed the pair towards the 108 mark but it is to the credit of the bulls that they managed to hold this region despite several attempts from the bears to break through this region.

Then came the French elections in which the business and euro friendly Macron won against the hardliner Le Pen and this helped to cheer the markets. The stock markets began to gain and the risk on mode helped to boost the USDJPY pair through 109 and through 110 as well. Then came the other good news of large tax cuts from Trump for the corporates and the middle class and this helped to boost the stock markets even further. This was reflected in the weakness of the yen which helped the USDJPY to trade through 111 easily.

In the coming month of May, the key would be the 112 region. If the pair is unable to break through this region, then technically, we are looking at the pair to move back into the 109 region. But a break of 112 would then open up the pair for an easy move towards the 115 region. The key for this would be the NFP and FOMC data and also the Fed plan for a rate hike in June. If the Fed more or less confirms it, then we should see this bull run in the pair to continue in May as well.

AUDUSD in Tight Range

The AUDUSD pair has been having a difficult time in progressing much during the month of April. The weight on the prices of iron ore and other commodity has been holding back the pair and the pair has not been able to do much and hence the volatility and the liquidity in the pair has been quite low during the month of April.

Try as it might, it has not been able to make much of a progress beyond 0.76 and the area around the 0.75 region has also proved to be like a magnet and has been pulling the prices towards it repeatedly. The economic data from Australia has also been showing a steady decline in housing and this should seriously concern the RBA. The RBA has also raised its concerns over the inflation data and this is also one of the reasons why the pair has been unable to make much of a progress.

In the upcoming month, we expect the pair to come under even more pressure due to the strength of the dollar which is looking at further rate hikes from the Fed in the coming months. Unless the RBA counters it with some interest hikes of its own, we should be expecting the Aussie dollar to be dead and buried pretty soon. The upcoming month would be crucial for the AUDUSD pair in this aspect and the region around 0.75 would be key and the range on either side of this should not be extending 150 pips either way. A break through this range in either direction would signal a much larger move.